Oil trades near seven-month low

19 June, 2017, 13:19 | Author: Leticia Walters

West Texas Intermediate for July delivery dropped 22 cents to $US44.51 a barrel at 12.47pm on the New York Mercantile Exchange.

OPEC and its allies have promised to restrict output until at least the end of the first quarter of next year to try to drain surplus supply.

Both benchmarks remained roughly 13 per cent below where they stood in late May, when producers led by the Organization of the Petroleum Exporting Countries (OPEC) extended a pledge to cut production by 1.8 million barrels per day (bpd) by an extra nine months until the end of the first quarter of 2018.

Oil prices tumbled to the lowest level in seven months Wednesday, as high oil inventories continued to erode confidence in the ability of major producers to ease a global supply glut.

However, oil stocks are near record highs in many regions across the world as traders anticipate further fall in prices.

Crude prices fell almost 4 percent on Wednesday, after US gasoline inventories rose unexpectedly and the International Energy Agency said it expects supply to outpace demand in 2018 despite consumption hitting 100 million bpd for the first time.

As such, OPEC said, in its monthly report, "Although oil prices rebounded from five-month lows in (mid-May), following positive USA jobs data and assurances by Saudi Arabia that Russian Federation is ready to join OPEC in extending production adjustments to reduce a persistent supply glut".

"The market is in trouble", said Tamas Varga, analyst at London brokerage PVM Oil Associates. On May 25, they agreed to extend their cuts into March 2018.

Crude output from OPEC nations rose by 290,000 bpd in May to a 2017 high of 32.08 million barrels per day, according to the EIA.

But production in the U.S., which is not part of the deal, has jumped 10% over the past year to 9.33-million barrels per day.

The continuous rise in the United States production further negated the impact of restriction in oil production. The US Energy Information Administration (EIA) expects production to rise above 10m bpd in 2018.

OPEC now predicts US production will increase by 800,000 bpd in 2017, compared with an expected decline of 150,000 bpd last December.

U.S. inventories fell less than forecast last week, keeping supplies more than 100 million barrels above the five-year average, according to data from the Energy Information Administration on Wednesday.

While oil prices traded between $48 and $55 a barrel at the beginning of the year, the market likely has adjusted to a new base range of about $43 to $49 a barrel, said Mark Waggoner, president at Excel Futures.

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