Oil price extends drop to 7 month lows, despite OPEC cuts
- Author: Zachary Reyes Jun 22, 2017,
Jun 22, 2017, 12:40
U.S. West Texas Intermediate crude futures for July dropped 54 cents, or 1.2 percent, to settle at $44.20 per barrel, the lowest close since November 14.
In his blog, Yardeni pointed out that despite a plunge in prices, USA crude production fell "just" 12% from the week of June 5, 2015, through the week of July 1, 2016, with weekly output better in Texas and North Dakota than the rest of the country.
"If we get bearish USA oil statistics this week, we could see a test of $45 on Brent", he added.
Domestic refiners and petrochemical industries have been made tense by global oil prices' continuing decline such as a seven month low.
Analysis says that this is because concerns about a glut expanded as Libya and Nigeria, which did not sign the OPEC's production reduction agreement, recovered their production volume and the United States scaled up its own production.
Oil was mostly flat on Wednesday, after paring earlier losses, but was set for its biggest price drop in the first half of the year since 1997, a sign that investors are discounting evidence that major producers are sticking to a deal to cut output. "It will be hard for Saudi and Russian Federation to keep cutting production in the face of a strong rise in USA crude production and output in Libya".
Libya's oil production rose more than 50 000 barrels per day to 885 000 bpd, a Libyan source told Reuters.
With all the new rigs being added, Goldman Sachs believes that the U.S. oil production will increase by 770,000 barrels per day (bpd) in the fourth quarter of this year over the fourth quarter of the previous year, in the major shale oil fields.
But a Bloomberg survey found that analysts expect USA stockpiles to fall by 1.2 million barrels in the prior week.
Meanwhile traders are hoarding an increasing amount of oil in tankers. "On the other hand, if oil price declines in the short-term, then it will not be able to stay at a low level for a long time", Konstantin Simonov concluded.
"A bear market is a market that fails to react bullishly to bullish news, " said Bill O'Grady, chief market strategist at Confluence Investment Management.
US oil output recently reached 9.33 million bpd, up 10 percent from 8.47 million bpd last October, according to Energy Information Administration (EIA) data.