Oil prices nosedive amid rising United States drilling
- Author: Zachary Reyes Mar 21, 2017,
Mar 21, 2017, 3:40
As of 8am GMT (4 pm Singapore time), prices for benchmark Brent crude futures were down 34 cents, or 0.66 per cent, at US$51.42 (S$72) per barrel. But the USA has a surplus greater than 20 percent of a five-year average level.
Crude oil futures edged lower Monday amid reports that OPEC may extend its supply quota experiment beyond this year. Brent crude was trading around $33 per barrel then, and OPEC appeared to have girded itself for a fight to the finish with US shale, whose production boom had tipped the market into oversupply. Two years ago, analysts assumed that oil prices below $60 would cause a huge decline in shale oil production.
Last year's big rally in oil markets was triggered initially by confidence, that two years of financial pain was forcing OPEC to shift strategy and support prices.
In the seven days to 17 March, the sector saw 14 rigs added, bringing the total tally to 631, the highest level since September 2015.
Opec will meet 25 May in Vienna, Austria, to decide whether to extend its 1.2m bpd production cut. Weekly data from EIA shows that USA oil production is ~9.1 million bpd and latest EIA forecasts show that oil production could average 9.2 million bpd this year.
The Organization of the Petroleum Exporting Countries (OPEC) is curbing its output by about 1.2 million barrels per day (bpd) from January 1, the group's first reduction in eight years.
According to the source, the price for April Futures WTI oil fell by 0,82%, which is $48,38 per barrel on the New York Mercantile Exchange (NYMEX). Plus, reducing supply did not increase oil prices. The cuts came as prices tumbled below $50 a barrel for the first time this year, and anxious executives discussed rising USA rig counts at an industry meeting in Houston.
USA crude oil settled at $26.21 per barrel on February 11, 2016. For starters, the organization believes that non-OPEC production this year, likely led by USA shale production, will grow by 0.4 million barrels per day.
Growing U.S. production is playing into concerns about the effectiveness of the deal between members of OPEC and other producers. Its members need higher oil prices to balance government budgets, but cutting back production to prop up prices means losing market share as other suppliers step in to fill the gap. Oil demand will also continue to rise this year and in the next few years, he said.