Crude Futures Settle Nearly 5% Lower; Gains From OPEC-Led Deal Erased

Marco Green
May 15, 2017

The U.S. West Texas Intermediate (WTI) crude oil futures fell more than 3 percent in early trading, ending up below $44 a barrel, the lowest price since Nov 14.

OPEC and non-OPEC producers agreed in December to cut supplies for six months, helping lift oil prices to about 55 dollars a barrel after a two-year slump.

Crude futures settled higher on Friday, recovering from a five-month slump, after Saudi Arabia said its supports the idea of extending the supply-cut agreement beyond June while the number of active USA drilling rigs rose for an sixteenth straight week.

US crude production, both onshore and offshore has increased for 11 weeks straight to 9.29 mb/d, showed EIA figures. Prices are still more than 50% below their peak in 2014, when surging shale output triggered crude's biggest collapse in a generation and left rival producers such as Saudi Arabia scrambling to protect market share.

Prior to the landmark deal, the volume of production in the country was at the level of 37.72 million tons of oil, while daily output stood at 829,100 barrels. Prices are down 5.4% this week, heading for a third weekly decline. Crude stockpiles fell by 930,000 barrels, compared with the median estimate for a 3 million-barrel drop in the Bloomberg survey.

Opec's deal in November, and subsequent supply cuts agreed by other oil producing countries, helped to boost prices earlier this year, said David Hunter, an energy industry analyst with Schneider Electric.

Pugh believes Opec and Russian Federation are likely to extend the cuts by at least three months at the meeting.

United States equities also were lower, with losers led by the energy sector, which fell 2.24 per cent to its lowest since August.

In London, BHP Billiton Ltd. fell 2.7% overnight Thursday and Rio Tinto fell 1.4%.

Light, sweet crude for June delivery fell $1.81, or 3.7%, to $46.01 a barrel on the New York Mercantile Exchange, on track to close at the lowest level since November 29. "Total U.S. petroleum demand rose to nearly 19.9 mbd and the highest since March 3", he said, reports Reuters.

Traders also pointed to soaring USA oil output, up more than 10 percent since mid-2016 to 9.3 million bpd C-OUT-T-EIA, levels not far off top producers Russian Federation and Saudi Arabia.

"There's a lot of option-related activities so as the market falls through US$45, the holders of short, put positions need to hedge", Societe Generale SA head of Asia commodities research Mark Keenan said.

It means they would continue to extract 1.8 million fewer barrels of oil per day than was the case before the start of the year.

At the next meeting on May 25, the cartel will decide whether to expand their agreement to lower crude production.

If OPEC and non-OPEC countries who are part of the production pact do not agree on a quota extension, WTI prices could drop back into the $30s, Williams said.

Other reports by Click Lancashire

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