Oil prices bounce but stuck near 2017 lows on supply overhang

U.S. West Texas Intermediate (WTI) crude futures were down 14 cents at $44.58 per barrel. Analysts had expected a decrease of 2.7 million barrels.

The drop has been attributed to an unexpected increase in US crude inventories, which rose by 3.3 million barrels last week (according to the US Energy Information Administration), despite expectations that it would drop by 3.5 million barrels.

Fesharaki, an expert in the energy market and an academic warned that the world may witness a drastic fall in price of a barrel of Oil to $30 if the OPEC failed to cut production.

"They should have cut another million barrels a day for ninety days in order to drain the system", said Gary Ross, global head of oil at PIRA Energy, a forecasting and analytics unit of S&P Global Platts.

OPEC said oil inventories in industrialised countries dropped in April and would fall further in the rest of the year, but a recovery in USA production was slowing efforts to get rid of excess supply.

"In 2018, we expect non-OPEC production to grow by 1.5million bpd which is slightly more than the expected increase inglobal demand". The state-owned oil giant is preparing to go public at a price that could value the company at $1 trillion, making it the most highly valued company ever to hit public markets.

Opec and 11 rival exporters including Russian Federation have agreed to extend a deal to limit supply by 1.8 million bpd to March 2018, in order to cut global inventory levels.

The oil research firm noted that the considerable drop in Brent futures prices, soon after the OPEC's meeting in May 25, this year, was mainly caused by an extension of the production cuts, and high level of speculation in the market. "We have to watch the United States markets", he said.

The Federal Reserve on Wednesday raised its benchmark interest rate for the third time in three months despite signs the US economy has cooled off in 2017. That led to a downturn in crude oil prices as many market watchers were anticipating deeper cuts.

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

Add in Russia's tanker shipments and its total exports are likely above 9 million bpd.

OPEC cut its estimate of oil supply growth from producers outside the group this year to 840,000 bpd from 950,000 bpd, following the decision to extend the curbs. Role of OPEC, non-OPEC members Kachikwu had stated that ensuring high and stable prices of crude oil globally, should be the role of OPEC and non-OPEC oil producing countries alike and should not be left alone for the former.

  • Zachary Reyes