Prices fall on fears of USA drillers counteracting OPEC cuts

21 March, 2017, 12:57 | Author: Leticia Walters
  • Fatih Birol executive director of the International Energy Agency speaks about the state of the oil industry at the annual CERAWeek global energy conference in this file

On the New York Mercantile Exchange crude futures for May delivery rose 0.37% to $49.09 a barrel, while on London's Intercontinental Exchange, Brent gained 0.45% to $51.85 a barrel.

In February, Saudi oil production staged a monthly rise of 180,000 bpd, but at 9.98 million bpd, its output remained below its agreed target of 10.06 million bpd and, according to tanker-tracking data, Riyadh is focussing its cutbacks on North America, the IEA said.

Gains in production from the United States, and producers from the Organization of Petroleum Exporting Countries eager to defend a market share, pushed oil to historic lows past year.

Last week speculators cut more than 150,000 contracts betting on firmer US and Brent oil prices, a record high. Production trends varied significantly across USA regions.

The OPEC agreementSaudi Arabia, Iraq, the United Arab Emirates, and Kuwait are bearing the brunt of the OPEC cuts, which could be extended another six months, while some member countries such as Nigeria and Libya have been exempted.

"This unwinding of position is both a cause and reflection of the big fall in crude oil prices when the cracks in the OPEC / non-OPEC deal emerged". Brent appears to be holding up better than WTI in the latest price rout, with the spread between the first and second month on Brent futures at minus 17 cents, versus a contango of 69 cents on the WTI M1/M2 spread. Inventories grew despite a 14,000 b/d rise in refinery inputs from 2015 levels to 16.2 million b/d in 2016. Declining production in the Midwest, expansions in pipeline capacity, and more attractive imports due to narrowing crude oil price spreads all contributed to reducing movements of crude by rail. "OPEC can easily shoot itself in the foot if the cuts lift the long-dated WTI price, which will drive US shale yet higher and stronger". While the number of active rigs is still well below the highs of a few years ago, the rig count has already doubled compared to last year's low.

Dominion Diamond Corp. surged 23.2 per cent to $16.27 after Washington Companies said on Sunday it had previously made a proposal to acquire the mining company for $13.50 USA ($18.03) a share.

With the evolution of shale oil technologies, shale oil production break-even price seems to be going even lower, paving the way for production to be increased as crude oil prices rally.

"These tight oil producers are the new swing producers, so every time OPEC tries to influence prices by cutting production you see the tight oil market step in which is why we have an upside limit".

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