Oil prices slide amid glut concerns, US withdrawal from climate deal

The declines were good news for oil markets, where prices have trended lower recently over concerns that rising USA production is offsetting output cuts by OPEC and other major producers and keeping global markets awash in oil.

This dilemma probably prompted OPEC to adopt the strategy of keeping the oil futures market in a mild contango condition and waiting for the inventory level to come down.

Exports from neighboring Iran also surged in May, reaching 2.2 million barrels a day, compared with 1.82 million in April, according to ship-tracking data compiled by Bloomberg.

USA crude and condensates output rose by 62,000 bpd month-on-month to nearly 9.1 million bpd in March ("Petroleum Supply Monthly", EIA, May 2017).

But rising production from the United States has so far undermined its efforts to reduce bloated global inventories to the five-year average.

While the weekly estimates are considered less reliable than the more comprehensive monthly numbers, they have generally provided a good guide to trends in the monthly data. The steady Saudi output and increased local consumption should pull more barrels from the global market. Rising production in Libya and Nigeria also raised concerns.

"Why wouldn't they ramp up production when producers like the USA have an open invite to do as they please?"

Reported output for March mostly reflects wells started before the end of September 2016, when there were fewer than 425 rigs drilling for oil in the United States, according to oilfield services company Baker Hughes. The increase is hardly a surprise given oil drilling has risen for 19 straight weeks, analysts say. Production is now growing at 95,000 barrels per day per month this year, largely thanks to hydraulic fracturing into shale formations.

"The agreement between OPEC and non-OPEC countries, with the biggest contribution from Saudi Arabia and Russian Federation, has given the market a breather, but it's hard to consider these as systematic measures that would lead to long-term stabilization", Sechin said on Friday.

Rystad Energy has predicted that USA oil production could hit an all-time high of 10 million barrels per day before the end of 2017. Consumption of gasoline, however, was down slightly - less than1 percent - to about 9.6 million barrels a day.

The EIA has revised its predictions for average production in 2017 up by 310,000 bpd and its forecast for the average in 2018 up by 660,000 bpd since January.

USA crude production as of last week was up by almost 500,000 barrels per day (bpd) from year-earlier levels, straining efforts from the Organization of the Petroleum Exporting Countries to reduce global oversupply.

Oil prices are down some 7.5% since Opec's May 25 decision to extend the cuts.

OPEC discussed cutting its oil output by a further 1-1.5 percent when it met last week, three sources familiar with the matter said, and could revisit the proposal should inventories remain high and continue to weigh on prices.

  • Zachary Reyes