Oil dips on concerns about rising US output, OPEC tensions

Gladys Abbott
June 9, 2017

Market watchers had been expecting a drop of 3.5 million barrels.

World fuel production and consumption is roughly in balance, at nearly 98 million bpd, although inventories remain somewhat bloated, according to the U.S. Energy Information Administration (EIA).

US light crude was down 20 cents at $47.20. With a production capacity of about 600,000 barrels per day (bpd), Qatar's crude oil output is one of OPEC's smallest.

WTI was trading at $48.10 at 2:30pm EST, up 1.48 percent on the day-with Brent trading at $50.05 per barrel, or 1.17 percent up since open.

"If we get another drop in USA inventory levels, we might begin to see the emergence of some confidence that 1.8 million barrel cuts will tighten inventories", said Gene McGillian, manager of market research at Tradition Energy.

Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest USA oil-storage hub, probably decreased by 750,000 barrels, according to a forecast compiled by Bloomberg.

However, the inability of crude prices to stick with earlier gains underscores market concerns over the unrelenting glut and the strong production out of the U.S.

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The United States Oil ETF (NYSEMKT: USO) traded down about 4.4%, at $9.53 in a 52-week range of $9.23 to $12.45.

As the de facto leader and largest producer of OPEC, Saudi Arabia has cut its production the most of any member of the bloc. Some were concerned about rising production from Libya and Nigeria, which are exempt from the agreement.

Money managers shaved short positions in West Texas Intermediate futures and options by 13 percent and long positions by 0.9 percent in the week ended May 30, according to US Commodity Futures Trading Commission data.

U.S. shale drillers pose a challenge to the Opec-Russia agreement because they can fill the supply shortfall by the middle of next year, Rosneft Oil Co.

OECD liquid fuels consumption will increase from 46.85 million barrels per day in 2016 to 47.14 million barrels per day in 2017 and 47.5 million barrels per day in 2018, the report said.

While Opec works to bring the market back into balance with its agreement to cut output by 1.8m barrels per day (bpd), production in the U.S. has been rocketing.

OPEC is looking to reassert its dominance over global oil markets after realizing its recent production cuts did not have the desired impact because North American shale producers kept pumping, weighing on oil prices in the process.

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