US oil production seen thwarting OPEC effort to boost prices

The U.S. central bank cited continued U.S. economic growth and job market strength, as it proceeds with its first tightening cycle in more than a decade.

But those efforts have been blunted by a massive boom in production by US shale operators, who have become much more efficient.

Refinery crude runs also rose 29,000 bpd and utilization rates rose 0.3 percentage point to 94.4 percent of total capacity. Crude oil production increased the most in Libya, Nigeria, and Iraq, while production in Angola and UAE showed the largest declines, OPEC said. Up next will be the EIA inventory report at 10:30 a.m. ET.

The International Energy Agency (IEA) projects non-OPEC output will increase by 1.5 million barrels per day (bpd) in 2018 ("Oil Market Report", IEA, June 2017).

But the increase in US production is now threatening to overwhelm the market, in a re-run of the situation in 2014 that led to the price collapse.

The decision by OPEC to extend oil production cutbacks until March 2018 was one of the most significant announcements this year, which is a remarkable indication of the serious commitment OPEC is undertaking in order to steady the rocking oil prices boat.

Brent crude fell 3.8 per cent to $46.87 a barrel in trading after publication of the figures.

Chart 2 shows that a rebound in drilling activity doubled the USA oil rig count from its 2016 low.

That decline pushed both contracts to their lowest since May 5, driving them into technically oversold territory. Gasoline stockpiles rose 2.1 million barrels, while distillate stockpiles edged up by 300,000 barrels last week, according to the EIA.

Oil prices have slipped 14% in NY this year as hopes that supply curbs by OPEC and partners such as Russian Federation would end a three-year surplus have given way to concern that the cuts aren't deep enough and that USA shale drillers will fill any shortfall.

Oil inventories are near record highs in some parts of the world, and producers outside the OPEC deal are increasing output.

Meanwhile, the IEA issued a warning that the global oil glut looks set to last through 2017 despite Opec's move, in concert with 10 non-Opec producers, to take 1.8m barrels per day (bpd) of production out of the market.

The watchdog said its first forecast for 2018 made "sobering reading for those producers looking to restrain supply".

  • Zachary Reyes