Crude oil prices finished sharply lower for a second day on Tuesday as investors continued to react to the notion that the plan to reduce output is not working as smoothly as anticipated and the threat of increased supplies from U.S. producers.
March West Texas Intermediate crude oil closed at $51.70, down $1.17 or -2.21%. International Brent crude oil finished at 53.64, down $1.30 or -2.37%.
For a second session, investors continued to worry about compliance by OPEC and non-OPEC members to agreed-upon production cuts that began on January 1. Additionally, traders are concerned about the rising U.S. rig count which strongly points towards increased production.
As far as the OPEC deal is concerned, traders are citing the cartel’s second biggest producer Iraq as the source of most of the market’s discomfort. It is being reported that Iraq plans to raise crude exports from is southern port of Basra to an all-time high in February. The export figure may be as high at 3.641, greater than the 3.51 million bpd record set in December.
In regards to U.S. production, on Tuesday, the U.S. Energy Information Administration said that increased drilling activity was set to boost crude oil production this year by 110,000 barrels per day to 9 million bpd compared with a year ago. Last month’s report called for an 80,000 bpd decrease.
Crude oil prices could see more downside pressure early Wednesday, but losses may be limited because of technical chart factors and ahead of the weekly U.S. Energy Information Administration inventories report.
In other news, the American Petroleum Institute (API) reported a 1.5 million-barrel build in its latest data release on Tuesday afternoon. Analysts had forecast a 1.2 million-barrel build. This is also the first increase in crude inventory in eight weeks.
The EIA also reported a draw of 187,000 barrels at the major futures hub in Cushing, Oklahoma. Gasoline inventories rose by 1.7 million barrels and distillates climbed by 5.5 million barrels.
Later today at 1530 GMT, the EIA will release its latest inventories figures. It is expected to report that crude oil inventories rose by 900,000 barrels the week-ending January 6 versus a 7.1 million drawdown the week-ending December 30.
Although the main trend is down on the daily charts and the fundamental news may be bearish, the March WTI crude oil contract is rapidly approaching a possible support area at $51.43 to $50.29. A test of this zone may encourage profit-taking or aggressive counter-trend buying.