Crude price drop is symptom of rising U.S. clout

In the United States, crude inventories fell by 8.7 million barrels in the week to May 26, data from the American Petroleum Institute showed late on Tuesday.

As the de facto leader and largest producer of OPEC, Saudi Arabia has cut its production the most of any member of the bloc.

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Obviously, the market is not impressed with the production cuts, and continues to focus on production increases in the U.S. With the decline in the price of Brent crude, the Brent-WTI differential has narrowed.

World fuel production and consumption is roughly in balance, at nearly 98 million bpd, although inventories remain bloated, the U.S. Energy Information Administration (EIA) said on Tuesday. Forecasters had predicted a decline in inventories. But Brent later reversed gains, trading down 58 cents, or 1.12 per cent at US$49.37 a barrel by 10:42 a.m. EDT. In addition, US shale oil producers are adding new rigs and pumping out more oil. This week, the news comes on the back of uneasiness in the oil market as Saudi Arabia and a few other Arab nations-which include OPEC members UAE and Libya-severed diplomatic ties with LNG heavyweight Qatar, citing that the country had sponsored terrorism and destabilizing the region.

The costs of producing shale and deep-water oil have fallen in recent years, enabling the US oil industry to be more competitive with the Organization of the Petroleum Exporting Countries (OPEC), according to the Institute for Energy Research (IER).

Government figures revealed that USA oil and product stockpiles jumped last week, wrong-footing traders who had been expecting a drop in crude inventories.

According to the Energy Information Administration (EIA), crude inventories surprised traders with a 3.3 million barrel rise in the week-ended June 2.

"The relentless increase in USA oil production appears to have the market anxious that the Opec cuts will be completely nullified by the increased United States production", William O'Loughlin, analyst at Australia's Rivkin Securities, wrote in a note to clients on Tuesday.

On May 25, OPEC and 10 non-OPEC partners including Russian Federation chose to roll over a 1.8 MMb/d production cut agreement into March 2018. Many OPEC member-nations ramped up production a year ago ahead of the production cuts so that they would have oil to sell when the production cut gets underway.

  • Zachary Reyes