Oil slides as U.S. climate withdrawal compounds glut concerns
- Author: Zachary Reyes Jun 11, 2017,
Jun 11, 2017, 5:29
Oil prices tumbled below $50 on Friday amid worries that U.S. President Donald Trump's decision to abandon a global climate pact could spark more crude drilling in the United States, stoking a persistent glut in global supply.
President Donald Trump's controversial decision to withdraw from the 2015 Paris climate agreement on Thursday sparked additional concerns that US oil production could expand rapidly in the absence of a stringent focus on curbing the use of fossil fuels.
Inventories fell by 6.43 million barrels last week, according to Energy Information Administration data, more than double the median estimate in a Bloomberg survey.
The price signal reflected other signs that an effort led by the Organization of the Petroleum Exporting Countries (OPEC) to curb production by nearly 1.8 million barrels per day (bpd) was starting to impact actual supplies.
Brent crude fell 3.1% as of 11:19 a.m.in London, bringing its loss to more than 9 percent since OPEC ministers sat down in Vienna to discuss extending their deal.
Global benchmark Brent crude futures was down 1.7 percent, or 80 cents, at $49.75 a barrel, as of 0725 GMT.
"This could lead to a drilling free-for-all in the USA and also see other signatories waver in their commitments", said Jeffrey Halley, senior market analyst, OANDA.
Surging U.S. production has put a strain on OPEC members' efforts to curb production to drain a global crude supply overhang.
Crude oil inventories again fell significantly, draining USA stockpiles by more than 10 million barrels over the past two weeks, the Energy Department reported Thursday. U.S. shale production requires a higher price to be profitable.The agreement proved to be partially successful, as it managed to keep the prices oil prices above $50 per barrel, giving a fiscal boost to major producers.More than 400 oil rigs are now working United States shale fields - an increase of more than 120 per cent compared with a year ago.
US crude output rose by 22,000 barrels a day to 9.34 million, according to a report Thursday from the EIA.
Rosneft, Russia's largest oil producer, has borne the brunt of output cuts under the extension deal.
OPEC and non-OPEC members last week agreed to extend production cuts for a period of nine months until March, but stuck to production cuts of 1.8 million bpd agreed in November previous year. "But crude production is slowly but surely going to neutralise the (OPEC-led) production cut", said Sukrit Vijayakar, director of energy consultancy Trifecta.
"Growth in oil production from U.S. shale acreages will remain a real threat that could scupper much of the benefits from output cuts by OPEC and some non-OPEC members", he said.
The agreement aims to limit the increase in global average temperatures to "well below 2°C above pre-industrial levels" - the level beyond which scientists say we will see the worst extremes of global warming. He questioned the efficiency of the output cuts, saying oil producers were losing market share to USA firms, which are not part of the deal.