Shale oil boom to hurt OPEC well into 2018

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.

U.S. West Texas Intermediate (WTI) crude futures were down 14 cents at $44.58 per barrel.

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. Libya, exempt from the OPEC-led deal to cut supply, will boost output to 1 million barrels a day by the end of July, according to the country's National Oil Co.

Oil inventories across the world's most industrial nationsrose in April by 18.6 million barrels to 3.045 billion barrels, thanks to higher refinery output and imports.

"Should OPEC solve the problem of the overhang this year, it is just going to come back next year, so in any case their options are quite limited", said Mr. Weinberg.

"Production growth in Libya and Nigeria and continued rig additions in US are complicating the picture, raising doubts on OPEC's strategy".

Oil prices edged up from 2017 lows on Friday but an ongoing supply excess put them on track for their fourth consecutive week of losses despite OPEC-led production cuts to support the crude market. He also said that the last time the price of oil fell, so did the stock market, and he feels that "a substantial drop in the price of oil would create a global recession".

Libyan output will reach 900,000 barrels a day within days, National Oil Co. said on its website, citing Chairman Mustafa Sanalla.

Rising output from the United States has been one of the main factors behind the stubbornly high stock levels and the IEA estimates USA production will continue to grow aggressively into next year.

The IEA forecast an increase in non-Opec output of 1.5 million barrels per day to 59.7 million bpd in 2018, with U.S. output to reach more than 14.1 million bpd. With the gain, Nigeria reclaimed the title of largest African producer in OPEC from Angola, where output fell by 54,000 bpd, the biggest drop among the 13 members in May.

"The industry continues to turn a crude oil surplus into a gasoline and distillate product surplus", Andrew Lipow, president of Lipow Oil Associates in Houston said.

The Organisation of the Petroleum Exporting Countries agreed to extend that deal that began in January through March 2018, but ongoing growth in USA production, along with exemptions for non-members Nigeria and Libya, have offset those cuts to some extent.

  • Zachary Reyes