Oil slips near $63 as risks counter reported USA inventory draw

WTI Crude Oil

The level of American oil production has 40 years of records.

Much of the increased flow will go to China, the world's top importer and, since November, the largest buyer of US crude other than Canada.

Brent crude futures LCOc1 were at $65.51 per barrel at 0721 GMT, flat from their last close and up from a 2018-low of $65.12 a barrel reached early in the session.

West Texas Intermediate for March delivery was down 31 cents at $63.08/bbl on the New York Mercantile Exchange as of 9:04 a.m. local time, after dropping 1.2% on Tuesday to the lowest since January 19.

"Crude was acting like a puppet with the equity markets and dollar acting as the puppeteer", said Brian LaRose, senior technical analyst at ICAP.

At 420.3 million barrels, USA crude oil inventories are in the middle of the average range for this time of year.

"For oil, API's numbers are supportive".

Falling commodity prices may also be attributed to a stronger dollar, as it deters buying interest and makes it more expensive for holders of other currencies. Estimates suggest that Opec oil output was largely unchanged at 32.5 mbpd in January and overall compliance touched 138 per cent.

United States stocks eventually rebounded in volatile afternoon trading on Tuesday.

China pulled in gas last month to avoid a supply squeeze ahead of another cold snap and as the world's most populous nation prepares for the Spring Festival celebrations that start next week. At this level, they don't provide competition for the equity market. "Any time you get a 1,500-point move in one day that's going to spook markets", said Phillip Streible, senior market strategist at RJO Futures.

On the whole, while the near term trend still remains positive, oil prices could see a correction given that the last leg of this rally has been driven by dollar weakness rather than oil fundamentals. However, front-month contracts fell further on Wednesday than further-dated futures, suggesting the EIA data dented that bullish view.

Saudi Arabia cut output past year as part of OPEC's 2016 deal to reduce supply - after losing a price war with US shale producers that created a global glut.

United States oil headed to the Middle East in December, an unthinkable trip just a few years ago.

"The report was unilaterally negative - not only did it show builds in both crude and refined products, but what spooked the bears is that USA production hit a fresh record high of 10.25 million" barrels per day, said Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions.

Speaking of gasoline, production increased last week, averaging 10.1 million bpd, versus 9.6 million bpd a week earlier, with refineries processing some 16.8 million bpd of crude oil, compared with 16 million bpd a week earlier.

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