Oil prices edged higher for the first time in three days during the course of Wednesday’s session, followed by the news of Saudi supply cuts to Asia. However, concerns over the output reductions and an optimism of rising shipments from other producers became persistent, which sent gains in check.
Brent crude futures climbed 52 cents at $54.16 per barrel, while the U.S. West Texas Intermediate crude futures rose 44 cents at $51.26 per barrel.
Meanwhile, Brent lost nearly 40 percent of its earlier gains made between November and January.
However, analysts claimed that the recent drop would hardly become more aggressive, given the likelihood of Saudi Arabia and its Gulf neighbors at least sticking to their agreement of output reduction.
"Few envision that Brent crude at sub-$50 a barrel is a viable price (in H1, or the first half of 2017) amid OPEC production cuts tightening up the market," SEB commodities strategist Bjarne Schieldrop said.
"If last night’s low of $53.58/barrel turns out to be the low point remains to be seen. However, we do think that buying in the territory between the current price of $53.88/b and down to $50/b is probably as good as it gets for buyers in H1."
Saudi Arabia, the world’s top oil exporter, spoke to its other Asian customers that it will cut their crude supplies slightly in February.
Low Oil Prices Could Precede
OPEC has agreed to an output reduction in November due to lack of sustainability of output at 2016 levels. Thus, an announcement of a cut could mark as a good way to cover the fact that commercial reserve limits have been reached.
Ahead of the widely accepted belief that OPEC has prepared a strategy, analysts have said that the strategy involves a price war with U.S. tight oil producers.
With the cartel’s mismanagement since 2014, it has reflected an unwillingness to repeat the same mistake of an output reduction between 1980 and 1985, in which those cuts had slightly affected the over-supply globally and damaged OPEC market share and revenue.
Oil Stabilizes After Sharp Selloff
Oil prices remained steady on Tuesday after a strong sell-off as a drop in the dollar has added an optimism on a short-covering, but analysts stated that the market became vulnerable and could further decline.
Subsequently, Brent crude climbed 35 cents per barrel and stood at $55.29, while US light crude oil rallied 35 cents at $52.31, according to reports.
"I see this as a dead cat bounce," said Ole Hansen, the head of commodity strategy at Saxo Bank in Copenhagen. "Oil is unlikely to recover until the longs have been reduced."
As oil prices remained higher, market participants are recommended to still wait on the sidelines as there aren’t any supporting candle present as of writing.
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