Global overcapacity drags oil prices down to six-month lows

Gladys Abbott
June 20, 2017

Both benchmarks are hovering near levels last reached in late November previous year when production cuts led by the Petroleum Exporting Countries (OPEC) were first announced in an effort to prop up prices.

NIGERIA's Brent crude price may increase by between $2 and $3 per barrel in the coming weeks, on the back of stable demand and low volatilities, a report by the global oil research firm S&P Global Platts, has predicted.

Oil prices advanced strongly late in the European session on Tuesday with a peak just above $46.50 p/b in WTI. As of April, inventories of oil in industrialized nations were 292 million barrels above their five-year average, according to the same sources.

The upshot of all of this is as obvious as it will be disheartening to petrostates: the oil market will swing further into oversupply next year.

Sample bottle of crude oil are seen in this illustration photo June 1, 2017.

On the New York Mercantile Exchange, crude futures for July delivery fell 0.97% to $46.01 a barrel, while on London's Intercontinental Exchange, Brent eased 0.84% to $48.31 a barrel.

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Growth in oil supply next yearis expected to outpace an anticipated pick-up in demand thatwill push global consumption above 100 million barrels per day (bpd) for the first time, the International Energy Agency saidon Wednesday.

Then on Wednesday, the International Energy Agency said in a report that output growth among non-OPEC members such as the US would outpace the increase in demand. "OPEC should rethink its strategy of trying to verbally and artificially drive oil prices higher, because the result of that strategy is very resilient USA production".

The rise in US production has surprised most analysts. This is according to new data from the Energy Information Administration, who said that United States crude stocks, in particular, fell by a far lower amount than they expected.

Rising non-Opec output has dented Opec and its allies' global pact to reduce oversupply in the market, which has pressured prices for almost three years. The EIA expects that to rise above 10 million bpd in 2018.

"Oil has been weighed down by the market's impatience with the generally slow pace of the global inventory drawdown amid a significant recovery in global oil supplies, particularly from the US", OPEC said in its June report today.

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