Jan. 17 (UPI) -- Crude prices fell early Thursday despite an OPEC report confirming a significant output cut because of bearishness related to rising U.S. oil production and inventories.
West Texas Intermediate crude oil futures fell 2 percent to $51.22 per barrel as of 7:35 a.m. with Brent futures declining 1.8 percent to $60.22 per barrel.
WTI prices increased from $42.53 per barrel during the Christmas holiday week to $52.59 per barrel a week ago.
"The battle continues to rage between the two key supply factors in the market -- rising U.S. oil production versus the onset of OPEC production cuts," Matt Smith, director of commodity research at ClipperData, told UPI.
"Even though today's monthly OPEC report shows a significant drop in OPEC production of 750,000 barrels per day -- led by Saudi Arabia but also aided by Iran -- the market is dealing with a hangover from yesterday's weekly EIA report," he added.
The latest data released by the Energy Information Administration shows U.S. production is now pegged at a record 11.9 million barrels per day, while U.S. product inventories rise strongly, Smith said.
The direction of WTI prices would likely depend on the demand side of the market.
"Because the market is in contango, i.e. the front month prices are lower than deferred months, I don't see the market placing much emphasis on the supply side," John Thorpe commodity broker at Cannon Trading, told UPI.
"Currently I am paying more attention to the demand side of this market. North of the Horse latitude's, the 30th parallel, we are in the dead of winter, demand for heating oil has been steady. Unleaded sales have been soft," he said.
"Look for the market to be range bound until a marked change to the above occurs. Look for the March WTI Crude contract to remain between $50.50 and $55.00 for the foreseeable future," he added.
Other than that, the biggest unknown is whether the United States will renew waivers so that Iran could continue selling crude oil.
The May announcement by the United States of nuclear program-related sanctions against Iran, and countries that would continue to buy oil from it, led to concern that the market would see shortages once the sanctions started on November 5.
Concern about potential shortages resulting from the sanctions led to price gains, with WTI trading above $76 per barrel and Brent above $86 per barrel on October 3 at the peak of the concern.
Production increases started to lead to price declines later in October. Then, on Nov. 5, the day U.S. sanctions against Iran started, the United States announced waivers so that eight nations could continue to buy its crude oil -- including the biggest purchasers. The waivers expire on March.
"Geopolitics have already been discounted.Tightening sanctions against Iran are still on the books for the first of March," Thorpe said.
Separately, Sukrit Vijayakar, analyst at Trifecta Consultants, told UPI that he believes price levels would have an influence on the United States decision on whether or not to renew the Iran related wavers.
"Traders need to remember that if prices overshoot, especially in the face of no evidence of shortage of supply, Iran waivers could be extended. While (U.S. President Donald) Trump has issues with Iran, he has more issues with getting reelected than Iran per se," he said.