Crude Oil Prices Take Massive Hit Despite OPEC Move to Extend Cuts

Oil prices slid five per cent yesterday to a one-month low, after an unexpected increase in USA inventories of crude and gasoline fanned fears that output cuts by major world oil producers have not done much to drain a global glut.

American crude production will average more than 10 million barrels a day in 2018, breaking a record nearly five decades old, according to the Energy Information Administration's monthly Short-Term Energy Outlook report Tuesday.

Brent crude futures were trading at $50.05 per barrel at 0242 GMT, down 7 cents from their last close.

Earlier that same month, Saudi Aramco said it would cut crude supplies to China, South Korea, and South East Asia by 1 million barrels each.

If the EIA reports a draw, it would be the ninth straight decline for USA crude oil inventories, which could support oil prices.

Gasoline stocks rose by 3.3 million bbl, compared with analysts' expectations in a Reuters poll for a 580,000 bbl gain.

The move initially pushed Brent crude prices up as much as 1 percent as geopolitical fears rippled through the market.

Crude oil storage data are still at multiyear highs globally because many traders stored oil when it was selling cheap in the hopes of reselling at a profit when the price of oil increases.

Analysts say the cuts have created a floor for oil prices, which has benefited USA shale producers, who are aggressively expanding their operations and raising their oil exports.

Despite this, there are doubts that an effort led by the Organization of the Petroleum Exporting Countries (OPEC) to curb production by nearly 1.8 million bpd was seriously denting actual exports.

There are already doubts the effort to curb production by nearly 1.8-million barrels per day is seriously denting actual exports.

OPEC announced that its member nations have agreed to extend the current production cut for another nine months. The organization members and other producers, including Russian Federation, had pledged to cut output by about 1.8 million barrels per day in order to shore up oil prices.

The rise in USA production has been driven by a record 20th straight weekly climb in oil drilling, with the rig count climbing by 11 in the week to June 2, to 733, the most since April 2015. Official data by the EIA will be published later on Wednesday.

Helping to lead markets astray, figures published by the American Petroleum Institute the day before had revealed a 4.6m drop in crude oil inventories, alongside builds for gasoline and distillates.

  • Zachary Reyes