Oil dips on concerns about rising US output, OPEC tensions

"Investors continue to doubt the ability of OPEC to rebalance the oil market, with crude oil prices remaining under pressure amid further signs of rising USA oil production", ANZ bank said on Monday.

What's behind the import shift that helped cause the 3.3 million barrel build in nationwide crude supplies? But probably to bring back confidence in the oil market, the Saudi Arabia and Russian Federation led OPEC and non-OPEC oil producers - announced an extension of output cuts to the first quarter of 2018. West Texas Intermediate light sweet crude futures were trading at just above $46 a barrel.

Traders said an ongoing fuel supply overhang was keeping prices under pressure despite a pledge led by the Organization of the Petroleum Exporting Countries (OPEC) to hold back nearly 1.8 million barrels per day (bpd) of production until the first quarter of 2018.

Oil prices on Tuesday resumed their slide from the previous session, hit by concerns that a political rift between Qatar and several Arab states would undermine an OPEC-led push to tighten the market.

In December, it was the first time since 2001 that OPEC and some of its rivals had reached a deal to jointly reduce output to tackle the global oil glut. Though on its own, Qatar is a small producer in the OPEC, if Iran and Qatar join hands, they can easily puncture the production cut deal.

Crude inventories USOILC=ECI rose by 3.3 million barrels in the week ended June 2, compared with expectations for a decrease of 3.5 million barrels, the Energy Information Administration said. Analysts expect a 3.5 million barrel decline in inventories.

Oil prices have declined by more than 4% since the previous week which is one of the largest weekly declines since May after data on Friday revealed that US oil drillers are expanding to 11 more active rigs which is the twentieth weekly rise in a row.

Tuesday evening the American Petroleum Institute (API) reported that crude inventories fell by 4.6 million barrels in the week ending June 2. Some were concerned about rising production from Libya and Nigeria, which are exempt from the agreement. "Disappointed that the oil cartel and Russian Federation could not come up with a bolder plan to reduce the global crude surplus, market participants have been selling into every bounce since", said Fawad Razaqzada, analyst at Forex.

If more gasoline is going into storage rather than into vehicles, refiners are likely to continue throttling back, buying less crude oil to make into fuel.

Supplies of petroleum and other liquids from non-OPEC countries totaled 58.17 million barrels per day in 2016. Despite this, Brent futures are still more than 8 percent below their level on May 25, when OPEC announced it would extend its production cut into 2018.

  • Zachary Reyes