Oil prices dip as supplies remain ample despite production cuts

Jay Anderson
May 19, 2017

Oil prices have gained support from the supply cut pact but high inventories and rising US production have acted as a brake on the recovery.

Crude oil prices have been in volatile territory for most of the year, swinging between the upper $50 range for Brent to the upper $40 level.

Four months after the OPEC/NOPEC deal took effect, oil prices dropped to the levels preceding the agreement, amid concerns over still stubbornly high inventories and rising US output. However, it will be complicated not just by rising production in Libya but also by shale producers in the United States and the rising crude oil inventory in the world's biggest economy.

A surplus of USA supply has led to large volumes of crude being exported from the United States to northern Asia, undermining OPEC-led efforts to tighten the market.

The U.S. Energy Information Agency (EIA) reported that U.S. commercial crude stockpiles fell by 1.8 million barrels to 520.8 million in the week through May 12.

Brent crude fell $1.10 a barrel to a low of $51.11 and was trading around $51.30 by 1050 GMT (6.50 a.m ET). Crude was up 67 cents to $49.32 a barrel as of 10:48 a.m. EDT, though prices are still 8 percent below April's peak of $53.76.

OPEC crude production rises in April - IEA
The ministers said they hoped other producers would join the cut, which would initially be on the same volume terms as before.

Some oil market observers see more declines coming for crude.

We'll start by looking at USA crude oil prices in early morning trade on May 18, 2017. Sandy Fielden, the director of research, commodities and energy at Morningstar, told UPI the perception in Asia is that OPEC crude oil is scarce because of the managed decline agreement.

The latest official estimates published yesterday show that U.S. shale production is set to grow to 5.4 million barrels per day by May.

"Markets seem to be holding their breath ahead of the OPEC meeting next week", said Michael Poulsen, oil risk manager at Denmark-based Global Risk Management.

While that's the stated goal of OPEC's deal with other exporters to remove a combined 1.8 million barrels a day from the market, Currie thinks the cartel has another aim in mind.

The oil bulls have been encouraged by the strong step by both Saudi Arabia and Russian Federation, who have backed an extension of production cuts up to March 2018. Inventories continue to sit above five-year averages, the level that major producers want oil stocks to return to in hopes of boosting prices, which remain less than half of where they were three years ago.

Other reports by BadHub

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