Oil subdued as rising US output undermines OPEC effort to cut supply

Blame a combination of the weakish jobs report (138,000 new jobs created, around 45,000 less than expected and 85,000 jobs sliced off the estimates for March and April), rising United States production and President Trump's withdrawal from the Paris Climate Accord on top of fears of a persistent oversupply of oil.

Benchmark Brent oil was down $1.63, or 3.1 per cent, at $50.21 a barrel after earlier touching $50.12 a barrel, the weakest since May 10. US production rose for the 14th time in 15 weeks, by 22,000 barrels a day to 9.34 million.

The U.S. Energy Information Administration (EIA) reports its official figures for U.S. stockpiles at 1500 GMT on Thursday. Analysts believed that stocks fell less - 2.517 million barrels, or 0.48 percent - to 513.783 million barrels.

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.

American Petroleum Institute (API) reported that U.S. crude inventories in the week ending 26 May declined by 8.7 million barrels to 513.2 million against the expectation of a fall of 2.5 million barrels.

Demand, however, is a fickle thing, and there is some risk that with all the USA crude and refined products now making their way to the both the global and domestic markets, those markets could become saturated.

Saudi Energy Minister Khalid al-Falih said further oil output cuts could be needed in the future but that OPEC and other leading producers would assess the market situation in July, Russia's TASS news agency reported on Saturday.

During the reporting period, the Organization of Petroleum Exporting Countries and its partners extended their existing cuts by nine months.

The general conclusion is that this move by Trump is not going to be favorable to oil prices.

Despite this, Brent futures are still down about 7 percent from their open on May 25, when OPEC announced it would extend its production cut into 2018.

The increase in USA drilling activity and shale production has mostly offset efforts by OPEC and other producers to cut output in a move to prop up the market.

"Greater OPEC restraint will help to shore up prices, but we do not expect it to be enough to push prices above $55 per barrel on average in 2017-18", said Cailin Birch, an analyst at the Economist Intelligence Unit.

Rising output from Nigeria and Libya is further undercutting the oil producers' attempt to limit oil production. Higher supply from Nigeria and Libya, OPEC members exempt from a production-cutting deal, offset improved compliance by others.

"The worry is that you have rising output in the United States and that's going to offset cuts", said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut.

  • Zachary Reyes