Crude inventories fall, but rising output tempers price gains

Still, oil markets received some support from official US data that showed the country's crude inventories fell sharply last week as refining and exports surged to record highs.

U.S. West Texas Intermediate crude CLc1 futures dropped 87 cents, or 1.81 percent, to $47.46 per barrel.

Crude oil inventories again fell significantly, draining US stockpiles by more than 10 million barrels over the past two weeks, the Energy Department reported Thursday.

Wednesday evening the American Petroleum Institute (API) reported that crude inventories fell by whopping 8.7 million barrels in the week ending May 26. Analysts polled by Reuters expected USA stocks to have fallen by 2.8 million barrels last week, their eighth straight weekly decline.

Meanwhile, the EIA added, distillate stockpiles, which include diesel and heating oil, rose by 394,000 barrels, versus expectations for a 755,000-barrel drop. While U.S. government data released on Thursday showed that crude inventories fell twice as much as forecast last week, rising exports and production suggest the glut is lingering.

The disclosure presents a no-win scenario for OPEC: if the cartel is correct and evolving demand will create supply gaps in the foreseeable future, then the deep water projects will compete directly with OPEC oil to fill these gaps.

USA oil production has already been increasing in recent months since the price of crude came off lows past year, making expensive shale oil extraction more economically viable.

Inventories fell by 6.43 million barrels last week, according to Energy Information Administration data, more than double the median estimate in a Bloomberg survey. USA crude production hit 9.34 million bpd last week, its highest level since August 2015.

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"This could lead to a drilling free-for-all in the USA and also see other signatories waver in their commitments", said Jeffrey Halley, senior market analyst at futures brokerage OANDA.

With Libya's increased output, OPEC's production reached the highest level since October 2014, giving energy traders jitters over the oil production agreement, analysts said.

OPEC crude output rose in May driven by gains from Libya and Nigeria who are excused from the agreement to cut production in an effort to recover oil prices.

Market analysts are troubled by a growth in U.S. crude production that is offsetting efforts from Opec to reduce global oversupply.

Market analysts are troubled by a growth in US crude production that is straining efforts from the Organization of the Petroleum Exporting Countries to reduce global oversupply.

Saudi Arabia and Russian Federation said OPEC and non-OPEC producers were committed to bringing global oil inventories down to the industry's five-year average.

US President Donald Trump is expected to announce the decision on whether the country would continue to accord with the global pact to fight climate change.

Analysts at Rystad Energy are predicting USA crude oil output could top an old record set in November 1970 by the end of the year. "The trouble with drawing it out is there are too many unknowns", said RCMA Asset Management chairman Doug King, whose Merchant fund runs some $190 million in commodities. It sent oil prices to 13-year lows, dealing a big blow to the shale revolution.

  • Zachary Reyes