Forward curve in oil prices looking dismal for OPEC

Supplies from OPEC also jumped in May, driven by recovering output from Libya and Nigeria, which were exempt from cuts due to unrest that had hindered their output.

Brent futures for August fell 46 cents, or 1 per cent, to settle at $46.91 a barrel, their lowest since November 29, the day before the Organization of the Petroleum Exporting Countries agreed to cut output for the first six months of 2017.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were down 15 cents, or 0.3 percent, at $44.59 per barrel. That means it's set to enter a bear market, which kicks in when settlement prices fall 20 percent from their peak.

By Friday, most of the markets have been convinced that OPEC's efforts to stabilize oil prices and end a three-year oversupply has fallen into a negative side as rising crude supplies proved to be more aggressive than expected.

Kazakhstan, which agreed to cut supplies past year as part of the non-OPEC bloc, said it would reduce production in June and July after overproducing for three months in a row.

UAE Energy Minister Suhail al-Mazrouei said on 17 June that was no need for an extraordinary Opec meeting to discuss whether the production cuts are having the desired effect.

"The market's in a game of chicken with OPEC and with Saudi Arabia in particular", said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund. The increased drilling activity led Rystad Energy to recently predict that monthly US oil production could hit a new record before the end of the year.

More worrying is the overall global demand-supply situation.

Oil plunged below US$45 a barrel last week after the U.S. Energy Information Administration said gasoline supplies surged to the highest level since mid-March at a time when summer demand should be bringing inventories down.

The agency stated that slowing demand growth in China and Europe and increasing supply meant the deficit should narrow to 500,000 bbl/d from a prior estimate of 700,000.

Brent was trading around $46.00, down 91 cents, by 1050 GMT.

"Right now there is little support to be found in light of recent supply-side developments, including further reinstatement of production in Libya, another rise in the USA rig count and reports of floating storage building up again", said Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London.

  • Zachary Reyes