Inventories drop, but extra supplies weigh (RDSA)

20 May, 2017, 10:32 | Author: Leticia Walters
  • Saudi Arabia is responsible for nearly 40% of OPEC cuts

OPEC's efforts to tighten the market and prop up prices have been undermined by a relentless rise in US production, especially from shale oil drillers.

It expects total output for 2018 to rise to almost 10 million bpd, with most of that coming from the increase to the 2017 forecasts.

But prices, however, slumped in recent weeks due to rising US production, which undermined the OPEC-led efforts to reduce a global crude glut.

In an overnight trade, crude futures also climbed sharply during the session on Wednesday as investors were enthusiast with the latest report from the Energy Information Administration (EIA), which revealed USA crude inventories declined more than expected.

Some analysts questioned the staying power of the sharp price rebound, given increased crude production in the United States, along with OPEC members Libya and Nigeria.

The United States, Canada and Brazil are not among producing countries including Russian Federation who meet with OPEC this month to decide whether to continue output cuts of 1.8 million barrels per day in an effort to reduce a global crude glut and support prices.

Currently, OPEC is planning to extend the tenure of this oil curb to the year-end or to next year.

USA crude stockpiles posted their biggest one-week drawdown since December last week as imports dropped sharply, while inventories of refined products also fell, helping boost oil prices that have been weighed down by concerns about oversupply.

The oil ministers of the two countries held a press conference in Baghdad where Iraqi Oil Minister Jabar Ali al-Luaibi said "there might be new ideas to be presented" at an OPEC meeting on May 25, without providing further details.

Shipments data has shown signs of drawdown, with shipments from OPEC countries expected to fall about 50 million barrels in April, according to Thomson Reuters.

Aramco and other producers typically issue monthly notices to refineries and other buyers with contracted supplies outlining their intended allocations to each customer.

While crude oil inventory is falling, the gasoline inventory is rising. The EIA now sees depressed oil prices at least through next year, saying that new oil flowing out of Canada and Brazil will inundate an already oversupplied market.

For 2018, oil demand is expected to increase by 300,000 bpd, down from a previously forecast rise of 340,000 bpd.

In the report, OPEC pointed to continued high compliance by its members with the supply deal and said oil stocks in industrialized nations fell in March - although they are still 276 million barrels above the five-year average.

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