'Oil price may hit $51 per barrel'

Crude prices came under pressure Wednesday after official data showed global oil stocks had increased, despite attempts by major producers to rebalance the market.

Recovering production from Libya and Nigeria, both of which were exempt from OPEC cuts, and high exports and production from Russian Federation were also contributing to the glut.

A Market Research Manager, Tradition Energy in Stamford, Gene McGillian, said in the report that fears of oversupply was driving the market, adding that crude oil price would appreciate soon.

Compounding the woes was the unexpected increase in gasoline stocks, surprising many traders and analysts who expected much of the excess gasoline to be mopped up during the USA summer driving season.

U.S. West Texas Intermediate (WTI) crude futures were at $44.70 per barrel, also little changed from their last close.

Opec's pledge was to cut 1.2-million barrels per day, while other producers including Russian Federation agreed to bring the total reduction to nearly 1.8-million barrels per day.

At 242.4 million, US gasoline inventories were 9 percent higher than the five-year average as demand was down 1.2 percent over the last four weeks when compared with a year ago, according to EIA.

But a monthly oil market report issued Tuesday by OPEC revealed that Nigeria and Libya - two members exempted from the cuts - had ramped up production, leading to a significant increase in the cartel's overall May output. "This looks challenging", AB Bernstein said.The International Energy Agency (IEA) said this week that oil supplies next year would still outpace demand despite consumption hitting 100 million bpd for the first time.

Although the IEA said it expected demand to pick up in the second half of this year and to grow further next year, it said it also expects supply to continue to be robust even if Opec and the 11 non-Opec countries supporting its output restraint deal maintain a high level of compliance with the cuts.

OPEC and its allies efforts to remove about 1.8 million barrels of crude oil supply have not been successful.

A report from the American Petroleum Institute last Tuesday that said US oil stockpiles rose by 2.8 million barrels last week.

OPEC's oil production jumped in May, despite the exporter group agreeing last month to extend its six-month deal to cap output into 2018. Total non-Opec production in 2018, led by the USA, is set to rise by 1.5m b/d - or more than double the rate of growth this year.

"The outlook for oil hinges on the effectiveness of the Opec cuts relative to the supply increases from USA shale", said William O'Loughlin, analyst at Australia's Rivkin Securities.

And at a meeting at the end of May, both OPEC and non-OPEC countries chose to roll over the output cuts for a further nine months.

  • Zachary Reyes