Wednesday, 23 August, 2017

Oil prices struggle on doubts OPEC can rein in oversupply

Global oil output sees slowest growth since 2013 USA crude oil inventories are still above historic norms — CHART
Howard Terry | 18 June, 2017, 01:21

Oil prices edged lower in European trading on Thursday, as data showing U.S crude stockpiles shrank by less than anticipated, while gasoline inventories increased, underlined fears over a global supply glut.

Summer boosts gasoline demand from U.S. drivers, yet gasoline inventories rose 2.1 million barrels last week, 9 percent over the five-year average for this time of year, according to the U.S. Energy Information Administration (EIA).

OPEC said oil inventories in industrialised countries dropped in April and would fall further in the rest of the year, but a recovery in USA production was slowing efforts to get rid of excess supply.

"OPEC 2017 year-to-date exports are only down by 0.3 million barrels per day (bpd) from the October 2016 baseline", analysts at AB Bernstein wrote.

U.S. West Texas Intermediate (WTI) crude futures were at $44.56 per barrel, up 10 cents, or 0.2 percent.

USA crude production has been steadily growing and last week rose to 9.33 million bpd, up 12,000 from the previous week, the EIA said.

Last month, OPEC and top nonproducers chose to extend their production cut to remove 1.8 million barrels per day from the market until March 2018 in an effort to push stockpiles below the five-year average.

However, prices for both benchmarks are still down by around 13 percent since late May, when producers led by OPEC extended a pledge to cut production by 1.8 million barrels per day by an extra nine months until the end of the first quarter of 2018. With supplies plentiful, strong demand is needed to drive the market, but there are signs of a slowdown.

The bulk of new oil entering the market will come from USA shale fields, who are all taking advantage of higher oil prices that makes it more lucrative to proceed with new oil rigs and investing in shale fields.

OPEC members Nigeria and Libya are exempted from the oil curb deal, and have raised their production, which largely undermined the oil cartel's efforts to rebalance the market.

Under the deal to support the market, OPEC is curbing output by about 1.2 million bbl/d and Russian Federation and other non-OPEC producers are cutting by half as much.

The EIA expects US output to grow by 460,000 bpd in 2017, while OPEC forecasts USA production to increase by 800,000 bpd in 2017.

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