U.S. oil output hampering market rebalancing: OPEC

Author

18 June, 2017

USA crude oil inventories fell last week, but an unexpected build in gasoline stocks and weak demand for the motor fuel offset market optimism over the crude drawdown, the Energy Information Administration said on Wednesday.

Light, sweet crude for July delivery slid US$1.73, or 3.7 percent, to US$44.73 a barrel on the New York Mercantile Exchange, snapping a three-session winning streak and closing at the lowest level since November 14.

Gasoline supplies gained 1.794 million barrels, compared with a drop of 457,000 barrels seen, and distillates dropped 1.451 million barrels, compared with a build of 686,000 barrels expected.

Brent crude oil fell 30 United States cents to $46.70 a barrel, its weakest since May 5 and just above six-month lows, before recovering a little ground to trade at $46.80 by 7.55am GMT.

"The outlook for oil hinges on the effectiveness of the OPEC cuts relative to the supply increases from USA shale", said William O'Loughlin, analyst at Australia's Rivkin Securities.

The weakness on the supply side was driven by non-OPEC production which fell by 0.8 Mb/d, its largest decline for nearly 25 years, said the report.

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After holding steady in European trading, oil prices were subjected to heavy selling pressure and 5-week lows following the latest EIA inventories data. Prices are down 2.6 percent this week. Global energy demand grew by 1 percent in 2016, a rate similar to the previous two years but well below the 10-year average of 1.8 percent, BP said in its benchmark Statistical Review of World Energy on Tuesday.

For oil market players, "the fact that consumption remains sluggish at a time when demand should be growing creates a reason to sell", said Satoru Yoshida of the Rakuten Securities Economic Research Institute.

A rapid rise in USA shale oil output will contribute to the increase in non-Opec supply next year, the IEA said.

Last month, OPEC and some non-OPEC producers extended a deal to cut 1.8 million barrels per day in supply until March 2018.

In addition, the International Energy Agency (IEA) said, Wednesday, it has expectations that non-OPEC growth supply should be higher within the next year than overall global demand growth.

"OPEC should rethink its strategy of trying to verbally and artificially drive oil prices higher, because the result of that strategy is very resilient US production".


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