World oil prices continue to decline

Brent for August settlement traded at US$45.91 a barrel, down 11 cents, on the London-based ICE Futures Europe exchange.

A drop-off in oil prices, which is on seven-month low, has dragged the world stocks and long-term bond yields down on Wednesday.

The prospect of a renewed rise in OPEC output and global oil inventories during 2018 has thrown oil prices onto the defensive over the last four months.

"U.S. crude and gasoline stockpiles are significantly higher compared with their five-year averages, which will weigh on prices", Kumar said.

Growth in production in the US and Libya, as well as a high level of oil reserves, undermines the forecasts that an oil production reduction will raise prices for "black gold". This data supported prices only briefly.

Compliance with an agreement by the Organisation of the Petroleum Exporting Countries and other producers to cut output by 1.8 million barrels per day (bpd) for six months from January reached its highest in May since curbs were agreed past year. USA crude inventories dropped by 2.72 million barrels last week, the American Petroleum Institute was said to report, according to Bloomberg.

While cheaper oil is good news for consumers, another big slump in oil prices has ramifications for both equity and currency markets.

Last week, the EIA said gasoline inventories, one of the products that crude is refined into, swelled by roughly 2m barrels against expectations for a decline of 457,000 barrels.

"Updated inventory balances don't represent a game changer", said Anthony Headrick, energy market analyst at CHS Hedging LLC in Inver Grove Heights, Minnesota.

Oil has returned to levels last seen before the Organization of Petroleum Exporting Countries and allies including Russian Federation decided in November to cut production to drain a global glut.

OPEC and non-OPEC oil producers' compliance with the output deal reached 106% in May, a source familiar with the matter said June 20.

Output from the 14-member exporter group ticked higher in May due to rising production in Nigeria, Libya and Iraq, raising concerns about OPEC's effort to shrink global stockpiles of crude oil. However, the expectation of a rise in United States gasoline and distillate inventories on June 9-16, 2017, could pressure oil prices.

A continued rise in US output during the rest of this year is unavoidable given the large number of extra rigs put to work in the first half.

  • Zachary Reyes