Oil drops as volatility concern counters reported inventory draw

An offshore oil platform is seen at the Bouri Oil Field off the coast of Libya

Crude production in the US increased 332,000 barrels per day (bpd) to 10.25 million for the week ending February 2, the Energy Information Administration (EIA) data showed. Total liquids production in China averaged 4.8 million b/d in 2017, a year-over-year decline of 0.1 million b/d (2%) from 2016, and further declines in both 2018 and 2019 are forecasted in EIA's January 2018 Short-Term Energy Outlook (STEO).

USA producers are pumping more oil after cuts by major producers, a weak dollar and geopolitical threats to supply sent crude prices roughly 50% higher in the second half of 2017.

Iran has indicated it intends to increase oil production in the next four years, but the country's oil minister, Bijan Namdar Zanganeh told reporters this week that his country could quickly add 100,000 barrels a day extra if OPEC and non-OPEC conclude the production cut agreement. These cuts have been somewhat offset by rising US oil production C-OUT-T-EIA, with output up 1 million bpd in the a year ago.

Oil traded near the lowest closing price in two weeks as concerns about volatility in global markets offset an unexpected drop in US inventories. Crude and oil product inventory builds aside, the EIA also reported USA domestic crude production hitting 10.251 million b/d, exceeding the 10.044 million b/p record set in 1970.

U.S. oil exports are on the rise as well.

The oil price hit its lowest point this year and American inventories were higher last week. The session low for USA crude was $58.07.

Crude oil production alone fell by an annual 4 percent to 191.51 million tons - or about 3.85 million bpd in 2017 - to the lowest in nine years, due to maturing fields and few viable new discoveries at home.

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Although crude oil is produced within the country, it was generally meant for domestic consumption, and the US has never been an exporter of crude-until recently, when the US Congress permitted shale-oil producers to export locally produced crude to global markets.

West Texas Intermediate for March delivery was 41 cents lower at $62.98 as of 12:19 p.m.in London, after dropping 1.2 per cent on Tuesday to the lowest since January 19.

USA crude exports have surged since the lifting of a decades-old ban in late 2015, helping support prices despite the rise in production. Whether this is a blip or the beginning of a longer term decline in crude prices is still an open question.

Until the early 2000s the United States were oil starved, importing a peak of 12 million bpd.

There are also a number of other reasons for the recent rally in crude-oil prices, which can be categorised into fundamental and technical opinions. Last month, it expected a 580,000-bpd increase to 10.85 million bpd.

"Oil prices could not escape the risk-off mood in financial markets", said Norbert Ruecker, head of commodity research at Julius Bear Group Ltd.in Zurich. This is 1.74% below the closing level of the previous trading session.

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