Oil markets cautious Tuesday as rising U.S. output undermines OPEC supply cuts

Brent Crude Oil

"The recent price support, namely the tension in the Middle East, has been swept aside as rising rig counts and USA shale output (are) in the focus of traders", PVM Oil Associates analyst Tamas Varga said.

Last week, both the crude benchmarks hit highs that were last witnessed in 2015.

On the supply side, tensions in the Middle East raised the prospect of disruptions, traders said. Crown Prince Mohammad bin Salman said last month that Aramco's initial public offering, part of an ambitious plan to diversify the Saudi economy beyond oil, was on track to go ahead in 2018. This year, all eyes are on the Middle East, the Saudi political purge, and the heating-up of tensions between the kingdom and Iran.

Unsurprisingly, production fell in Iraq in the past month.

Bahrain said at the weekend that an explosion that caused a fire at its main oil pipeline on Friday was caused by sabotage, linking the attack to Iran, which denied any role.

OPEC is due to meet on November 30 to discuss further output policy.

Mazrouei said on Monday that coordinated cuts by OPEC and suppliers outside the group have helped trim crude inventories from record storage levels, "I am optimistic about the whole of 2018", which will be a "recovery year" for oil markets, he said.

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Brent crude oil prices dipped below $63 a barrel today as the International Energy Agency (IEA) revised its oil demand forecast down due to mild early winter temperatures and rising production from some countries. "This is a continuation of the strong demand growth we are seeing in our short term oil market analysis", the report said.

OPEC has sought to push stocks to the five-year average.

Brent crude futures reached $62.94 per barrel.

The speculator group raised its combined futures and options position in NY and London by 37,960 contracts to 381,666 during the period, the US Commodity Futures Trading Commission (CFTC) said.

Hedge funds also increased holdings of Brent futures and options in the latest week, extending their bet on a rally to the highest on record.

Throughout the week, prices were also bolstered by rising global demand data and expectations that OPEC and other producing countries will extend a deal to cut output. It will also become a net exporter of oil.

The number of rigs operating in USA oil fields rose by nine to a total of 738 rigs this week, oilfield service firm Baker Hughes said in its weekly report on Friday. Currently, RSI on daily chart is above 60 levels indicating high momentum in prices.

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