Oil Closed Near One Month High On Reduced U.S. Stockpiles

On Tuesday, oil prices closed near one month highs on the expectation of reduced U.S. stockpiles. The proposed OPEC cuts continue on the right path in sustaining global oil prices.

What may have capped gains is the ramp up in production seen in Libya. WTI crude oil closed higher by 1.6% to $51.03 a barrel. Brent crude oil gained 1.8% to $54.07 a barrel.

Stockpiles Draw

Oil prices closed higher on the expectation that the U.S. government would announce a stockpiles draw for the week. Many analysts were expecting for such a drop to happen. As soon as the market closed, the forecast was spot on.

The American Petroleum institute — API — released data that showed a stockpiles draw. It reported that there was a stockpiles draw of 1.83 million barrels in the United States. There are two positive aspects about the data. The first positive is that it beat out analysts’ expectations. Analysts were only expecting a draw of 300,000 barrels.

The second positive aspect is that there was a drawdown observed for the week. That is very important because oil prices trade based on both supply and demand. When there is less supply in the market, it shows that a strong demand exists for the product. That in turn helps boost prices.

OPEC Cuts

Oil prices also traded higher on the notion that the OPEC cuts are working well. Last year OPEC and other non-OPEC nation made a vow to curb oil output. This goal was to be achieved, by cutting out 1.8 million barrels per day from the global market. Thus far, most nations have been complying on their promises.

That doesn’t mean that the deal hasn’t seen some setbacks. The main issue is that the deal was only created to last for the first six months of 2017. That means that in the second half of the year, oil prices might run into some trouble. The good news is that OPEC is attempting to garner support to extend the cuts for an additional six months.

If that were to happen then oil prices could have more time to recover. The big issue is that there is no guarantee that all these nations would agree to an extension. That is the risk that is involved with the OPEC deal. There is one other major outlier that might derail the OPEC cuts.

That involves oil rig drillers in the United States. They have been ramping up production, mainly for the fact that oil prices have been rising. That is because the U.S. is not part of the OPEC deal, and it has been increasing its production of oil. This somewhat counteracts the global OPEC deal.

Libya Problem

What may have capped gains in oil prices, would have been Libya bringing its daily oil output back online. Just last week armed forces caused the country to have to shut down two oil fields.

That meant that a lot of supplies were removed from the market. Well, on Tuesday it was reported that Libya was able to bring its production back to where it was. That means that it has been able to produce between 200,000 to 250,000 barrels for the day. That is not a good thing at all for the global market, and why oil prices pared gains.

What Binary Options Traders Should Watch For

There are a few things traders should watch.

The first of which is if the following weeks have a similar draw in stockpiles. This week was a good one, but it remains to be seen if the following reports will follow a similar pattern. The good news is that the upcoming summer season will help curb output.

The second item would be the OPEC cuts. It is largely dependent upon whether or not OPEC can create an extension deal on output. If it can do that, then oil prices should have no problem trading higher.

The final item that traders should keep an eye on would be the oil production of Libya. Any further interruptions to output would be a huge positive for the global market, which is suffering from an oil glut.