Oil prices dip as supplies remain ample despite production cuts

Marco Green
May 20, 2017

Goldman said that beyond the ongoing rise in United States oil production, which is up over 10 per cent since mid-2016 to 9.3 million bpd, output will increase by Opec members who were exempt from the cuts, or where supply disruptions had ended, including Libya and Nigeria.

Brent crude futures were down 50 cents, or 1 percent, from their last close at $51.15 per barrel at 0146 GMT.

Crude dipped in Asia on Thursday as investors turned cautious on political risk after U.S. Justice Department Deputy Attorney General Rod Rosenstein appointed former FBI director Robert Mueller as special counsel to take over the investigation of Russia's alleged interference in the U.S. presidential election and awaited more on next week's crucial meting on extending an oil output cut plan.

Both benchmark prices started the day in negative territory after industry data from the American Petroleum Institute estimated that US crude stocks had risen by 882 Mbbl in the week ending May 12 to 523 MMbbl.

"The fall in stockpiles undershot the expectation of a 2.36 million draw", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Russian Federation and Saudi Arabia said Monday they want to extend oil production cuts through the first quarter of 2018, in a move the two major producers say would support the market price. Data from the Energy Information Administration (EIA), seen as more complete, is due later on May 17.

The cartel is billed to meet in Vienna later this month, to discuss possible extension of output cut.

In late November, OPEC agreed to cut production by 1.2 million barrels a day, the first such reduction agreement since 2008. Kuwait, Iraq, Oman and Venezuela have said they supported an extension to the supply cuts.

But the US crude drawdown was smaller than expected and the oil market remained extremely well supplied, analysts said.

Jefferies bank said it was lowering its oil price forecasts due to the strong rise in U.S. production, cutting its Brent price estimate for the second half of 2017 to US$59 per barrel from US$61 previously.

Shipping data in Thomson Reuters Eikon shows that U.S. oil exports to Asia have soared from just a handful of tankers per quarter throughout 2015 and 2016, to 10 tankers in the first quarter of this year, a figure that is expected to rise in the second quarter.

North Sea oil output, generally seen in terminal decline, is expected to jump by a net 400 Mbbl/d in the next two years with new projects and greater efficiencies.

Other reports by Click Lancashire

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