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Brent crude dips below $ 70 after surprise rise in US inventories

Comments / {{hitsCtrl.values.hits}} Views / Thursday, 25 January 2018 00:05

LONDON (Reuters): Benchmark Brent crude oil prices eased yesterday, pressured by a rise in US crude and gasoline inventories, but remained close to three-year highs.

Brent futures fell 10 cents to $ 69.86 a barrel by 1330 GMT, having climbed above $ 70 this month for first time since 2014. US West Texas Intermediate (WTI) futures were up 17 cents at $ 64.64.

The American Petroleum Institute said on 23 January that crude inventories rose by 4.8 million barrels in the latest week, compared with expectations for a decline of 1.6 million barrels. Gasoline inventories also rose.

Official US government inventory data was due out late last evening. “The market has rallied by 50% and a lot of investors have been involved for a long time,” said Saxo Bank senior manager Ole Hansen.

“At what level would we start to attract some nervousness on the downside? We probably need to break below $60 on WTI to put the cat among the pigeons ... It’s going to take more than just a stock-build today to change that equation.”

Money managers hold more bullish positions in crude futures and options than at any time on record, which has been encouraged by falling global inventories after production cuts by the Organisation of the Petroleum Exporting Countries, Russia and others. Some traders, however, are showing signs of seeking protection against a fall in prices. Trading data shows open interest for Brent put options for selling at $ 70, $ 69 and $ 68 a barrel has climbed since the middle of last week.

Sukrit Vijayakar of energy consultancy Trifecta, said the rising sell options are a result of huge amounts of long positions built up in previous months. “We still have ... nine long barrels for every short barrel, so a reversal should be interesting to watch,” he said.

However, traders said oil prices are unlikely to fall far because markets are being supported by strong global economic growth pushing up oil demand and output restraint by the OPEC-led supply pact.

The deal to withhold output started in January 2017 and is currently set to last through this year.

Adding a layer of support to US oil prices was a 0.7% drop in the US dollar after Treasury Secretary Steven Mnuchin’s comments that a weaker currency was positive for American trade.

Typically, a weaker US currency will encourage non-US investors to buy oil and other dollar-denominated commodities.

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