Oil down as market stays well supplied despite Opec cuts

US crude oil rose 30 cents to $49.37.The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russian Federation pledged to cut output by nearly 1.8 million barrels per day (bpd) in the first half of 2016, a deal likely to be extended until the end of March 2018.Leaders from OPEC and other producers meet in Vienna on May 25 to decide on output policy. The Energy Information Administration reported United States crude stockpiles fell 1.8M barrels in the week ending May 12, following the preceding week's drop of 5.2M barrels and falling behind expectations for a 2.5M-barrel decline.

Increasing activity from US shale producers has undermined the attempt by the Organization of the Petroleum Exporting Countries to lessen the global supply glut by cutting its own output this year.

Prompting Wednesday's gains was news USA oil production last week saw its first decline in three months.

"We might not have seen a resounding return to deficits [in Q1 2017] but this report confirms our recent message that rebalancing is essentially here and, in the short term at least, is accelerating".

US West Texas Intermediate (WTI) crude was down 16 cents, or 0.3%, at US$48.91. "There is a long way to go before we arrive at five-year average stock levels", said Sukrit Vijayakar, director of Trifecta energy consultancy.

Oil prices dipped on Thursday, weighed down by plentiful supply despite ongoing efforts led by OPEC to tighten the market by cutting production.

Participants in the agreement between OPEC and other major oil producers to cut output, such as Algeria, Russia and Saudi Arabia, have voiced support for extending the deal at their meeting this month.

Shipping data in Thomson Reuters Eikon shows that US crude exports to Asia have soared from a handful of tankers a quarter throughout 2015 and 2016 to 10 tankers in the first quarter of 2017 and that figure is expected to rise.

Meanwhile, four of the 11 non-OPEC nations that joined supply cuts - Russia, Azerbaijan, Oman and South Sudan - have said they would also support extending the curbs. "While most remain optimistic over Opec extending the production deal at the upcoming meeting on 25 May, it becomes a question of how USA shale reacts and if (American) pumping intensifies".

"Capped OPEC/Russian production with stronger seasonal demand during summer sets the stage for oil prices to reach $60 a barrel over the coming months", Giovanni Staunovo said.

  • Zachary Reyes