Global oil prices slipped on Wednesday as the US dollar, in which payments for crude are made, rose but they traded broadly at multi-week highs after OPEC signalled optimism over its deal with other producers to curb output. The US West Texas Intermediate April crude contract , the new front-month future, was down 34 cents, or 0.6 percent, at $53.99 a barrel at 0940 GMT. Brent crude was down 44 cents, or 0.8 percent, at $56.83, having touched its highest since Feb. 2 at $56.20 in the previous session.
Nevertheless, an agreement by major oil producers under the OPEC umbrella, which came into place at the start of this year, lent a floor to oil prices.
Mohammad Barkindo, secretary general of the Organization of the Petroleum Exporting Countries, told a conference on Tuesday that January data showed conformity from member countries in the output cut at above 90 percent.
Adding to the bullish sentiment, hedge funds raised their combined net long position in the three main derivative contracts linked to Brent and WTI by 51 million barrels last week, holding a net long position equivalent to a record 903 million barrels of oil. The combined net long position has a notional valuation of more than $49 billion.
“While net length in Nymex crude has grown more or less uninterrupted since the OPEC cut decision towards the end of last year, its share of total open interest in the contract has now reached the highest level since July 2014, back when WTI was trading in triple digits.
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Both OPEC’s Barkindo and Goldman Sachs, according to a new research note to clients, expect global inventories to fall, which would boost prices.
Goldman Sachs, however, noted that a rebound in U.S. drilling activity had exceeded even its own above-consensus expectations.
“While the reduction in supplies out of core OPEC in the Gulf and Russia has exceeded our and consensus expectations, the market is starting to doubt that this will be sufficient to translate into large oil inventory draws by 2Q17,” it said in a research note.
In the meantime, crude oil inventory data from the United States will potentially guide the markets for the rest of the week.
“The DoE data tomorrow will be where we get our next impetus,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney, referring to the U.S. Department of Energy’s official weekly numbers on stockpiles.
The data is set to be released on Thursday, a day later than normal, following a U.S. public holiday on Monday.
Last week’s numbers showed U.S. output helped boost crude and gasoline inventories to record highs, amid faltering demand growth for the motor fuel.
That has kept a lid on prices after they climbed following the agreement by OPEC and other producers to cut output by about 1.8 million barrels per day (bpd).
(additional reporting by Aaron Sheldrick, editing by Louise Heavens)