Supply Issues Continued To Undermine Crude Oil prices

Mandy Carr
July 14, 2017

In November previous year, when OPEC members agreed to cut production for the first time since the Great Recession, it was welcomed with great optimism and oil price jumped more than 20 percent, from $45 per barrel to as high as $55 per barrel (WTI). It seems that Russian Federation may oppose any attempts to deepen the oil production cuts as it may give the impression that OPEC and its partners in the deal are uncertain about its effectiveness in reducing global supplies.

After very choppy trading following the EIA inventories report, crude oil settled below the $46.00 p/b level late in the U.S. session.

While world demand is climbing faster than initially estimated, OPEC's implementation of the supply cutbacks needed to clear the inventory surplus has faltered to its lowest level since the group began in January, the Paris-based agency said.

OPEC members Libya and Nigeria were exempted from the cuts due to years of unrest that have sapped their output. The prices are still been pressured by evidences of an ongoing fuel glut despite efforts led by OPEC to tighten the market by holding back production.

"This month, there are two hitches: a dramatic recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement", IEA said, adding that the development raised doubts about the pace of rebalancing demand and supply in the oil market. Production (the IEA's estimation) was lagging behind demand at 96.69 million bpd in May.

Looking ahead, the IEA increased its 2017 global demand forecast by 100,000 bpd to 98 million bpd as consumption from Germany and the USA increases. The build in total USA petroleum inventories for the week ending June 2 was the largest for any week since 2008. That's more than what most OPEC members export.

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On Wednesday, July 12, 2017, the EIA (U.S. Energy Information Administration) released its weekly petroleum status report. Between 2011 to 2014, when oil prices ranged between $57.33 to $126.65 a barrel, OPEC producers enjoyed a cost advantage of $10 to $40 per barrel over listed "Big Oil" firms, according to Goldman's analysis.

Anyway, no further oil output cuts are expected for the July meeting of the ministerial committee set up to monitor compliance with the OPEC-non-OPEC deal.

OPEC crude oil production rose by 340,000 barrels a day to 39.48 million barrels in June. Since the shale revolution through 2000s, US producers reached a production level that took the country from a net importer to a net exporter. The EIA reported another 7.6 million barrel oil draw.

Overall compliance with the deal slumped to 78 percent in June, from 95 percent in May.

The number of rigs in operation has more than doubled from May 2016.

Other reports by Guamnewswatch

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