Oil prices near seven-month lows on global oversupply

Jay Anderson
June 20, 2017

Of the two Opec states not included in the deal, some temporary political deals have allowed Libya's output to top 800,000 barrels per day for the first time since 2014, and Nigeria has also bounced back. On the New York Mercantile Exchange, light, sweet crude futures for delivery in July was trading 2.5% lower at $43.34 a barrel. Data on Friday showed a record 22nd consecutive week of increases in US oil drilling rigs. Libya recently announced that it would unblock 160,000 barrels a day of production, which has been halted for almost two years due to a dispute with a German energy company.

Oil prices fell to seven-month lows on Tuesday after news of increases in supply by several key producers, a trend that has undermined attempts by OPEC and others to support the market through reduced output. Analysts said a steady rise in US production, along with output increases in cut-exempt Libya and Nigeria, were undermining the OPEC-led effort.

Recovering production from Libya and Nigeria, both of which were exempt from the Opec cuts, and high exports and production from Russian Federation were "swamping" the cuts made by the Opec, he said, adding that the "outlook of oil looks grim, unless the production cuts are increased, which is unlikely".

Brent for August settlement rose 4 cents to $46.96 a barrel on the London-based ICE Futures Europe exchange. "Total OPEC members' proven crude oil reserves increased 0.5 per cent to 1,217billion at the end of 2016, with a share of 81.5 per cent of total world crude oil reserves".

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Brent crude futures were up 43 United States cents at US$47.35 per barrel yesterday evening, while West Texas Intermediate crude futures were at US$44.71 per barrel, up 25 U.S. cents. The global benchmark crude traded at a premium of US$2.48 to August WTI. Since May 25, when the Opec opted to roll over a 1.8 million barrel per day output cut for another nine months, crude prices have fallen about 12 per cent. As the EIA points out, "U.S. tight oil production is relatively responsive to changes in oil price, and given an estimated six-month lag between a change in oil prices and realized production, higher crude oil prices in mid-2017 have the potential to raise US production in 2018".

Just the week before, the International Energy Agency had said inventory levels within the OECD continued rising at a rate of 620,000 barrels per day in April, which the analysts pointed out was above the seasonal norm. Traders are storing more crude at sea amid swelling production in the Atlantic region, a sign the market is far from rebalancing.

Saudi Arabia's Minister of Energy, Khalid al-Falih on Monday said the oil market was heading in the right direction but still needed time to rebalance.

Other reports by BadHub

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