Crude prices dip 3.7 percent as USA gasoline stocks rise

Oil prices fell to their lowest in over five weeks on Wednesday following USA data showing an unexpectedly large weekly build in US gasoline inventories and International Energy Agency (IEA) data projecting an increase in non-OPEC production.

The pressure comes from the huge overflowing on global oversupply; according to OPEC countries and non-OPEC participating countries vowed to keep production at the 1.8 million barrels per day levels till the end of the year and just before the first quarter of 2018 ends.

In its Monthly Oil Market Report (MOMR) for May, OPEC said its output rose by 336,000 barrels per day (bpd) in May to 32.14 million bpd as a result of increased production by Nigeria and Libya. Additionally, the IEA projects that non-OPEC nations collectively will expand their output by 700,000 B/D in 2017 and 1.5 million B/D in 2018, slightly more than the forecasted growth in global demand.

"Our first outlook for 2018 makes sobering reading for those producers looking to restrain supply", said the report.

OPEC is curbing output by about 1.2 million bpd, while Russian Federation and other non-OPEC producers are cutting 600,000 bpd under an accord that was extended until March 2018.

Oil prices settled lower for a second straight day on Thursday, as the market was unable to rebound from Wednesday's decline on the back of a surprise build in USA gasoline inventories and ongoing worries about heavy global supply.

Oil prices have been under pressure in recent weeks as concern over rising US shale output offset production cuts by OPEC and non-OPEC members. Inventories were 292 million barrels higher than the average over the past five years, said the agency, which advises governments on energy trends.

"Inventory data out last night showed another weekly build in crude inventories despite markets expecting a draw", he said.

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

Supply from 11 OPEC members with production targets under the accord - all except Libya and Nigeria - averaged 29.729 million bpd last month, according to figures from secondary sources that OPEC uses to monitor output.

The bulk of the upward adjustment in non-OPEC oil supply since December "has come from the US", OPEC said. Yet crude prices have slid about 12 per cent since that day as other countries have boosted output. Data from the U.S. Energy Information Administration (EIA) this week showing growing gasoline stocks and shaky demand, despite the peak summer driving season, sent prices tumbling.

OPEC's pledge was to cut some 1.2 million bpd, while other producers including Russian Federation agreed to bring the total reduction to nearly 1.8 million bpd.

"The rebalancing of the market is underway, but at a slower pace", the report said, acknowledging it will take more time to tighten the supply-demand balance.

  • Zachary Reyes