Trump's Latest Move Sets Oil Prices Down
- Author: Anthony Vega Jun 10, 2017,
Jun 10, 2017, 7:06
US crude stocks fell sharply last week, driven by a surge in refining and exports to record highs, while gasoline inventories also dropped sharply ahead of the start of the summer driving season, the Energy Information Administration (EIA) said June 1.
The Organization of the Petroleum Exporting Countries and some non-OPEC producers on May 25 agreed to extend output cuts of about 1.8 million barrels per day (bpd) until March 2018.
OPEC and non-OPEC countries are committed to bringing global oil inventories down to the industry's five-year average, Minister of Energy, Industry and Mineral Resources Khalid Al-Falih said on Wednesday, adding he saw the target being reached in the very near future.
Oil prices were down on Wednesday with Brent crude trading 55 cents lower at $51.29 per barrel, while US West Texas Intermediate fell 51 cents to $49.15. However, that understanding got broken as the production in the United States recovered by nearly 0.9 million barrels per day even as the oil price continued to hover below $50 per barrel.
Opec members Libya and Nigeria are exempt from the cuts, while United States shale oil producers are not part of the agreement and have been ramping up production.
OPEC and non-OPEC are making slow progress despite reported high levels of compliance with output cuts implemented from the start of 2017 and recently extended to the end of March 2018. Analysts polled by Reuters expected USA stocks to have fallen by 2.8 million barrels last week, their eighth straight weekly decline.
Last week, the group along with Russian Federation - which isn't part of Opec - chose to extend the agreement for a further nine months until March because the oil market had so far failed to rebalance.
On oil price decline, the OPEC scribe said that the cartel has no issues with people taking position, adding that the producers' group has made a decision to focus on the fundamentals.
"The lack of moderation in USA production is undercutting OPEC efforts to manage the market", said Michael McCarthy, a chief strategist at CMC Markets in Sydney.
Ultimately, prices rather than planned cuts will rebalance the market, which will most likely require a period of flat or lower prices to curb shale growth and ensure US output does not outstrip demand.
Crude prices fell from over $100 per barrel in summer 2014 to under $40 a barrel in early 2016.
That followed the American Petroleum Institute saying USA crude supplies fell 8.7 million barrels last week by its count.