Oil slides as United States climate withdrawal compounds glut concerns
- Author: Zachary Reyes Jun 03, 2017,
Jun 03, 2017, 15:31
API figures showed that USA crude inventories fell by 8.7 million bbl to 513.2 million in the week to May 26, compared with analyst expectations for a decrease of only 2.5 million bbl.
Gasoline inventories, one of the products the crude is refined into, dropped by 2.86 million barrels against expectations for a draw of close to 1.1 million barrels, while distillate stockpiles unexpectedly rose by 394,000 barrels, compared to expectations of a 755,000 decline.
The Secretary General of OPEC, Mohammed Barkindo, believes it is too early to discuss ending the exemption from the oil production cut deal that Libya and Nigeria have been benefiting from, boosting their crude oil output in the last few months.
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures continued to slide early Friday as investors reacted to U.S. President Trump's decision to withdraw from a global climate pact. Gains were muted throughout that session and then evaporated in the last half-hour of trading, a pattern that itself is likely convincing more traders to sell Friday, brokers said.
Production cuts by OPEC and its partners are taking longer than expected to eliminate the surplus as USA shale drillers boost production with surprising speed.
Members of the Organization of the Petroleum Exporting Countries (OPEC) May 25 renewed an agreement with 10 other crude-oil producers to limit output through March 2018.
US crude fell in Asia on Friday after President Donald Trump abandoned a 2015 pact between 195 nations to tackle climate change and investors awaited further supply cues.
By the end of the year, USA output is seen reaching a record 10 million barrels a day, according to consulting and data firm Rystad Energy AS.
"A decrease in production under an agreement between OPEC and non-OPEC could largely be balanced out by an increase in US shale oil production by the middle of 2018", Sechin said.
OPEC's decision to extend the same level of cuts for nine months rather than reducing production further could prove insufficient to draw out the surplus despite OPEC's strict compliance with the curbs.
But perceptions matter to markets, and Trump's announcement yesterday has further strengthened analysts' belief that this Administration will do everything it can to help out America's oil and gas industry (even though the natural gas boom is responsible for knocking Old King Coal off his throne in the U.S.). US production was still down 800,000 barrels per day, or about 0.8%, year over year.
Last week OPEC and a number of non-OPEC producers extended a deal to cut 1.8 million bpd in supply until March 2018. Growth from a smaller producer injecting "such a significant drag to oil prices suggests that market watchers remain extremely wary over any potential supply-glut widening", said Barnabas Gan, an OCBC economist.
USA crude production last week was up by almost 500,000 barrels per day (bpd) from year-earlier levels, straining OPEC's efforts to reduce global oversupply.