Oil dips on glut concerns, but Mideast tension, falling United States stocks support

Oil prices dipped on Wednesday on renewed concerns about the efficacy of OPEC-led production cuts due to rising tensions within the export group over Qatar and growing US output.

West Texas Intermediate (WTI) for July delivery declined 13 cents to $47.27 a barrel at 9:50 am on the New York Mercantile Exchange.

Traders said an ongoing fuel supply overhang was keeping prices under pressure despite the agreement by Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC produces to extend its cuts of nearly 1.8 million barrels per day (bpd) of production.

"EIA also stated that United States production can touch a record ten million bpd next year from the current output of 9.3 million".

The EIA (U.S. Energy Information Administration) will release its weekly crude oil inventory report on June 7, 2017.

Oil halted gains as USA industry data showed gasoline stockpiles expanded, countering expectations of a seasonal decline and a decrease in crude inventories. Phil Flynn, a senior market analyst at the Price Futures Group, said earlier this year that USA production could reach 10 million barrels per day in August.

USA oil producers exported a record 1.3 million barrels of oil a day in May, according to the Houston Chronicle. Still, WTI barrel prices failed to go much beyond $48.

Commodities brokerage Marex Spectron said it expects a "lower supply of crude oil on the physical market" in the coming weeks, lending oil prices some support.

According to traders Brent crude oil futures were at $50.21 per barrel on Monday - an increase of 26 cents, or 0.5 percent. 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.

Crude prices, in addition, continued to remain under pressure after several Saudi-led Gulf states cut diplomatic ties with Qatar on Monday claiming national security concerns.

The rise in US production has been driven by a record 20th straight weekly climb in oil drilling for new production, with the rig count climbing by 11 in the week to June 2, to 733, the most since April 2015.

But analysts believe production could hit the key mark this year.

"Increased drilling activity in US tight oil basins, especially those located in Texas, is the main contributor to oil production growth, as the total number of active rigs drilling for oil in the United States has more than doubled over the past 12 months", EIA acting Administrator Howard Gruenspecht said in a statement.

  • Zachary Reyes