Oil slides as US climate withdrawal compounds glut concerns

Gwen Vasquez
June 2, 2017

With the fall in Global crude oil prices, CPC has calculated the average price of crude oil at US$50.22 per barrel this week, down from NT$52.44 per barrel last week, according to its website.

OPEC and other producers including Russian Federation are trying to restrict output to drain stockpiles that are close to record highs in many parts of the world. Previous year at this time, a gallon of regular gasoline cost $2.322 on average in the United States. Last week, the agreement was extended by another nine months.

I featured three charts all of which argued that the "fast money" was very long crude oil, and I was concerned about that.

The surge in production from the exempt nations threatens to blunt the impact of the accord.

On Friday, the head of Russia's state-controlled Rosneft oil giant said that that a rise in shale oil output in the US would likely offset the effect from the OPEC and Russian production cuts. The initial six-month deal had been due to end on June 30. Bank also considers that the 9-month extension in production curbs will achieve a normalization in OECD inventories by early 2018, even with gradually declining compliance.

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Russia, which has cut production by 300,000 bpd under the deal, could increase production next year to as much as 11.07-million bpd, the country's deputy energy minister told Reuters. If that appears to be the case at the end of the first quarter of 2018, OPEC might be forced to extend once again. According to the US Department of Energy, seven of the world's largest oil producers are not in OPEC.

The return of "very cheap hydroelectric power in the western US", and more nuclear power capacity after seasonal maintenance, "should put a lot of pressure on [natural] gas prices", he said.

Gasoline inventories, one of the products the crude is refined into, dropped by 2.86m barrels against expectations for a draw of close to 1.1 million barrels while distillate stockpiles unexpectedly rose by 394,000 barrels, compared to expectations of a 755,000 decline. "U.S. refiners have added over 800,000 barrels a day of capacity since January 2015 and they're using it". The number of rigs operating in US fields has jumped by 11 to a total 733 last week, compared with 325 at this time past year. This year that number has ramped up to 40 percent.

Rising prices, which had tumbled from above $100 a barrel in 2014, have encouraged US shale producers to increase drilling. "You always have to add a second bit - which is 'enough to do what?' And for that you have to do the balances", Horsnell said, adding that Standard Chartered expects inventories to fall by 1.4 million bpd in the second half of 2017. Global fuel market turns its focus back on macroeconomic data and possible geopolitical issues.

Oil prices has gained some ground but an inventory glut and rising supply by outside producers has kept prices below the 60 dollars a barrel that Saudi Arabia wants.

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