Oil edges down as OPEC sees market rebalancing at slower pace

Oil prices edged up on Tuesday, lifted by statements that Saudi Arabia was making significant supply cuts, although rising USA output meant that markets remain well supplied.

Riyadh is leading an effort by the Organization of the Petroleum Exporting Countries, Russia and other oil producers to cut output by nearly 1.8 million bpd until March 2018 to curb oversupply.

OPEC and non-OPEC countries chose to extend oil output cuts for nine months in Vienna on May 25.

While Saudi Arabia and Russian Federation, the two biggest producers in the accord to lower production, have pledged to do "whatever it takes", the "current form of "whatever" is not having as quick an impact as expected", the IEA said.

"Crude oil is still struggling to rebound", said Olivier Jakob, strategist at Petromatrix, adding that Opec's gradual approach to rebalancing was giving United States producers time to drill new wells that were undermining the impact of the group's cuts.

The measures helped stabilise oil prices at the beginning of the year, with the global benchmark Brent crude sticking above $50 per barrel.

Last month Opec extended a six-month agreement to curb production by a further nine months to attempt to bring inventories down to nearer average levels and support oil prices.

According to the MOMR, US output is still expected to rise by 800,000 bpd in 2017, contributing nearly all the increased output by the non-OPEC members.

Brent has dropped back below $50 since the OPEC meeting. Accordingly, higher shale oil supplies will weigh on prices.

The post-API price declines followed overnight gains despite rising production in May by members of the Organization of the Petroleum Exporting Countries.

"The outlook for oil hinges on the effectiveness of the Opec cuts relative to the supply increases from USA shale", said William O'Loughlin, analyst at Australia's Rivkin Securities. After increasing in April by more than normal for the time of year, stockpiles are 292 million barrels above their five-year average, the agency said.

Distillate inventories fell this week by 1.451 million barrels, while inventories at the Cushing, Oklahoma, site fell by 833,000 barrels after last week's dip of 1.56 million barrels. This upward adjustment was mainly due to the downward revision in non-OPEC supply as world oil demand remained unchanged.

The agency continued to forecast an implied shortfall in supply relative to demand for the second quarter of this year.

  • Zachary Reyes