Oil Trades Lower Over Doubts On OPEC Cuts

On Tuesday, oil prices closed lower over doubts that OPEC would be able to extend cuts in its most recent agreed upon deal. The API report showed a build in barrels of oil, which did not help prices at all.

The expanding production of shale oil in the U.S. is another roadblock for oil prices. WTI crude oil closed lower by 1.8% to $47.34, while Brent Crude oil closed lower by 1.2% to $51.02 per barrel.

Extended Cut

There were doubts from the market that OPEC would be able to extends its output cut deal. The goal was to be able to extend cuts all the way to June of this year. Last year OPEC and non-OPEC countries were able to create a deal.

The deal was to allow each country to reduce the amount of barrels of oil beingproduced. This was done in order to increase oil prices. The deal that was made was to cut up to 1.8 million barrels of oil per day from the market.

Most countries have been able to get close to their stated cuts. Some countries have not stood by their respected deal. What is the holdup then with being able to extend cuts? OPEC will not support extended cuts until other non-OPEC countries come on board.

Another problem is that Russia has not been fully on board with the original deal. Russia pledged to cut up to 300,000 barrels of oil per day. It has not been able to fully live up to that pledge.

Many traders are skeptical that Russia would consider extending cuts past the originally planned six months. Even with the extended cuts, since the deal started, crude stockpiles continue to outpace demand. Analysts state that the OPEC cuts would have to last until the fourth quarter of this year to take full effect.

Crude Stockpiles

The American Petroleum Institute released stockpile data on Tuesday. It showed that there was a build of 4.5 million barrels of crude oil in the week ending March 17. This brought the total barrels of oil to 533.6 million. There are two problems with respect to this reported number.

The first of which is that analysts were only expecting a build of 2.8 million barrels during that time period. The fact that the amount of barrels of oil produced was nearly double the expected amount was not bullish at all.

The second issue is that the ultimate goal for OPEC is to see a drawdown in the amount of barrels of oil. Considering that there was a build instead, it is not a good thing at all.

Increased Production

The truth of the matter is that oil prices have been range bound between $51 a barrel to $57 a barrel. With that in mind, U.S. shale oil production has picked up. The pickup in production has happened for a few reasons.

The first reason is the Trump administration scaling back on regulations. Matter of fact, it has backed two pipeline projects for the United States. The two pipelines it has backed are the Keystone XL and Dakota Access pipelines. Both of these will likely increase production output. That will be a major problem for oil prices as stockpiles build.

The second reason is too many rigs are being added in the United States.This year alone, there has been an increase of oil rig counts by 125. That brings the total amount of oil rigs in the U.S. to 602. The rig count is at the highest level since around October of 2015.

What Binary Options Traders Should Watch For

Traders should watch a few things.

The first of which is to monitor if the extended cuts are put in place. OPEC led cuts are expected to last up to June. The goal would be to see if it can garner a deal past that time, and well into the fourth quarter of this year. If that is achieved, then oil prices might have a shot at trading higher.

The second item would be crude stockpiles. The build seen in the most recent week does not help oil prices trader higher. In order for traders to become bullish in oil, they must see a drawdown in stockpiles instead.

The final item that traders should keep an eye on would be the production of oil in the United States. Oil production being increased in the U.S. is a good thing for corporations, but terrible for oil prices. The amount of rig counts will need to decrease if oil prices are to rebound higher.