CRANBURY, N.J. (DTN) -- Oil futures with nearest delivery on the New York Mercantile Exchange and Brent crude on the IntercontinentalExchange reversed higher from seven and 10-month low settlements plumbed Wednesday to advance for the first session this week amid an oversold market and talk of deeper production cuts to help siphon off excess global inventory.
Oil futures tested Wednesday's intraday lows overnight before gaining modest upside traction with some analysts suggesting the selloff might have been overdone.
"The last time we sold off like this in early May we snapped back. Even as the mood is negative, we expect a similar snap back," said Chicago-based Senior Market Analyst Phil Flynn with The PRICE Futures Group. "We really think that this selloff is being driven by emotion rather than fact and we should see a snap back."
Oil futures declined into bear market territory this week, which is defined as a 20% or greater decline from a recent key high.
Today's bump higher was lent support from reports indicating Iran's oil minister, Bijan Namdar Zanganeh, said the Organization of the Petroleum Exporting Countries are now considering deeper production cuts.
An OPEC, non-OPEC coalition today reported compliance with their production cut agreement of nearly 1.8 million bpd at 106% in May, up from 102% in April. Despite strong compliance with the agreement which took effect Jan. 1, global oil inventory including crude and oil product supply in the United States have failed to decline substantially, with some in the market calling the agreement, which runs through the first quarter 2018, a failure.
The coalition's efforts have been frustrated so far by a steep increase in U.S. crude production along with output gains in Nigerian and Libya, with the two OPEC countries rapidly ramping up production following internal problems that had previously constrained new supply. Nigerian and Libya are exempt from the production agreement because of these issues.
New York-based Tim Evans, energy futures specialist with Citi Futures, noted the market's focus on these three countries, suggesting supportive fundamental factors are being dismissed.
"In fact, with seasonal demand for crude oil set to rise in Q3 to levels that will likely result in a deficit on the order of 0.8 mmbpd, we don't know that further action is strictly necessary," said Evans in a market advisory today, adding however that deeper cuts would "help the market out of its recent funk."
At settlement, NYMEX August West Texas Intermediate futures were up 21 cents at $42.74 per barrel (bbl), with August Brent on ICE advancing 40 cents to a $45.22 bbl settlement. NYMEX July RBOB futures gained 2.4 cents on the session with a $1.4345 gallon settlement, and July ULSD futures settled 0.68 cent higher at $1.3716 gallon.
The market's focus on production gains in the United States, Libya, and Nigeria, discounted tropical storm activity in the Gulf of Mexico this week as well as recent heightened rhetoric in the Middle East, including threats against U.S. air power by Russia after a U.S. pilot shot down a Syrian fighter jet on Sunday.
Tropical Storm Cindy weakened as it made landfall at the Texas, Louisiana border earlier today, with the storm shutting in less offshore production in the Gulf of Mexico than previously estimated. The storm offered no price support for crude oil and natural gas futures.
Brian L. Milne can be reached at email@example.com
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