Oil prices fell more than 2% on Monday as investors took profits ahead of the week's expected inventory data release, wiping out Friday's rally.
"Sentiment towards oil remains bearish amid oversupply fears and the possible threat of OPEC's supply cut deal falling apart", said Lukman Otunuga, analyst at futures brokerage FXTM. USA commercial crude inventories have fallen by nearly 13% from their March peaks to 466.5 million barrels according to EIA data. Hence, an uptrend is oil price is on the horizon as the Venezuelan oil situation continues to worsen. A year ago at this time, a gallon of regular gasoline cost $2.177 on average in the United States. Gasoline demand fell for the second consecutive week. U.S. gasoline consumption could hit a record in 2018. The Brent crack spread at USG is at $9.38 in August, 58 per cent higher year-on-year.
However, rising production from Libya, an OPEC member exempted from the deal, has undermined the efforts to rebalance the market. Consequently, Opec's exports rose to a record high in July, touching 26.11 mbpd. Many producers have more than half of 2017 production hedged at more than $50 a barrel. Years ago we talked about the upside of the USA shale market long before most people understood how dynamic it could be.
"Increased crude oil imports and a drop in the refinery utilization rate open up the possibility of weakness in WTI".
"Another decline in US crude stocks may push prices somewhat higher again, but the upside may be limited - especially if USA crude production ticks higher again", said Hans van Cleef, energy economist at ABN AMRO.
Total gasoline inventories decreased by 1.2 million barrels last week, according to the EIA, and remain near the upper limit of the five-year average range.
"We are now seeing some profit-taking after Friday's strong rally ahead of this week's inventory data", said Hans van Cleef, senior energy economist at ABN Amro.
Crude futures were drifting lower early Wednesday in Asia as another weekly rise in USA gasoline inventories weighed on market sentiment, eroding the bullish impact of a drop in crude stocks reported by the industry body American Petroleum Institute for the week ended August 18.