OPEC: Oil Market Rebalancing At 'Slower Pace'

Gwen Vasquez
June 14, 2017

Crude oil prices suffered major losses last week, losing the hold on the $50 per barrel floor, but were up more than 1 percent and near the $48 range in early Monday trading.

In the short-term, however, the struggling prices of oil has caused the near-term trend to turn bearish on both oil contracts.

Angola on the other hand suffered the lowest production among the 13 member state from 1.667 million barrels per day in April to fall to 1.613 million barrels per day in May. The U.S. Energy Information Administration expects this number to surpass 10 million barrels per day by 2018, posing a significant challenge to Saudi Arabia which is now the top oil exporter.

Threatening to undermine OPEC's efforts is rising US drilling activity RIG-OL-USA-BHI, which has driven up output C-OUT-T-EIA in the United States by more than 10 percent since mid-2016, to over 9.3 million bpd.

"The fact that US oil production has risen almost [600,000 barrels a day] so far in 2017 remains a substantial underlying headwind on prices, as the output gains are offsetting roughly half of OPEC's pledged cuts" of 1.2 million barrels, said Tyler Richey, co-editor for the Sevens Report, according to a report on marketwatch.com last Friday.

"This suggests that USA shale oil production will continue to rise".

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The number of drilling rigs in the U.S.is also on the rise, for the 21st consecutive week as of June 9.

Echoing similar views, Ole Hansen, head of commodity strategy at Saxo Bank said Opec's agreement to extend production cuts for another nine months has so far had a limited impact.

Brent crude futures were up by 85 cents at $49 per barrel by midday, after hitting a session high of $49.15.

"The combination of a rebound in OPEC and Russian output in the first half of 2018 and growing USA production will probably push the market back into oversupply next year after being in a large deficit in the second half of 2017", Capital Economics said in a note.

Saudi Arabia, OPEC's biggest producer and the world's biggest exporter, also raised its production slightly in May, according to secondary sources cited by OPEC. This could lead to calls for Nigeria and Libya's output to be capped - a step OPEC says is too early for now. With the glut slow to shift, producers agreed in May to prolong the accord until March 2018. In Saudi Arabia and Russian Federation, this share is much greater, as those countries produce lesser amounts of natural gas plant liquids, and they also have much smaller volumes of refinery gain and biofuels production.

Thus, OPEC expects Russia's oil production to be by 40,000 barrels per day lower inn2017 than in 2016.

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