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SocGen: U.S. oil market a bit bearish; Iran tensions lift prices slightly
by Daniel J. Graeber
New York (UPI) Feb 3, 2017


Iran tensions again lift oil prices slightly
New York (UPI) Feb 3, 2017 - Increased geopolitical tensions are adding support to crude oil prices early Friday, though the market remains highly volatile so far.

Crude oil prices moved somewhat higher earlier this week after the White House put Iran "on notice" for a recent missile test. While Iran can lean on emerging European partnerships, President Donald Trump is expected to impose new sanctions on Iran and increase tensions after a modest thaw under the previous administration.

Crude oil prices moved during the week on competing trends in the U.S. labor sector. Private payroll processor ADP reported signs of strength, though short-term figures from the U.S. government reported weakness in the four-week moving average.

For January, the Labor Department reported Friday the overall unemployment rate ticked up slightly to 4.8 percent even as the U.S. economy added 227,000 jobs.

The price for Brent crude oil was up about 0.2 percent about a half hour before the start of trading in New York to $56.68 per barrel. West Texas Intermediate, the U.S. benchmark price for oil, was up 0.25 percent to $53.66 per barrel.

Any broader market rally may depend on how investors read the January labor numbers. Gains were reported in most sectors, though hourly earnings increased by 3 cents in January, against the 6-cent increase in December.

On the energy front, an agreement from the Organization of Petroleum Exporting Countries to trim output in an effort to balance the market seems to be holding. That's competing against slow but steady increase in U.S. oil production as recovering crude oil prices improve North American economics.

The immediate focus may still be on Iran given its proximity to major crude oil export arteries. Nevertheless, that may be balanced by other macroeconomic factors and keep a limit on how high crude oil prices may go.

Olivier Jakob, managing director of Switzerland-based consultant Petromatrix, said in an emailed report that energy markets were still highly uncertain.

"There is still no defined trending momentum in crude oil," he said.

The trajectory for crude oil prices may be influenced later in the day when Baker Hughes publishes weekly data on exploration and production. Any increase would signal growing industry confidence and point to possible gains in oil supplies.

The U.S. crude oil market is turning bearish as stockpiles build up in response to rising imports, a review of data from Societe Generale said.

A weekly report from the U.S. Energy Information Administration put total domestic oil production at an average 8.9 million barrels per day for the week ending Jan. 27. That's down slightly from the previous week. Imports increased slightly, commercial crude oil inventories increased by 6.5 million barrels and, at 494.8 million barrels, are at the upper range for the average this time of year.

Michael Wittner, the head of U.S. commodities research at SocGen, said in an emailed report the U.S. market was turning bearish, adding "the rise in crude stocks was entirely driven by the U.S. Gulf Coast, where imports saw a particularly large jump and refinery runs continued to fall due to maintenance."

Refineries are running lower as they prepare for regular maintenance season ahead of a U.S. market shift to a summer blend of gasoline, which requires additional environmental safeguards because of warmer weather. Data shows that imports into the U.S. market, meanwhile, moved higher after two straight weeks.

Elsewhere, at the main storage hub in Cushing, Okla., Wittner said stockpiles tightened for their fourth-straight week, though flows out of Cushing are curtailed by pipeline problems and that could show up as supply-side pressure by next week.

Storage in the U.S. Strategic Petroleum Reserve remained unchanged at 695.1 million barrels. SPR sales are permitted for early 2017, however.

In terms of production, EIA data show output was down slightly from previous weeks because of declines in the Lower 48. That means any reported growth is coming from the U.S. Gulf of Mexico or Alaska.

Anthony Starkey, the manager of energy analysis for S&P Global Platts, said in a separate report from earlier this week that most of the recent gains in U.S. oil production have yet to factor in resilient shale.

"We have yet to really see the improvement in shale output," he said.

Activity in the exploration and production sector, reported in weekly rig count data from Baker Hughes, show a steady rise in the United States. Lower crude oil prices curtailed rig activity last year, though shale has been more resilient than expected.

A level of global market balance is apparent in a managed production decline agreement coordinated by the Organization of Petroleum Exporting Countries.


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