Oil Prices Slump on Overflowing Supply

Both benchmarks are hovering near levels last reached in late November a year ago when production cuts led by the Petroleum Exporting Countries (OPEC) were first announced in an effort to prop up prices. As of April, inventories of oil in industrialized nations were 292 million barrels above their five-year average, according to the same sources.

In its monthly oil market report, the IEA notes, "For total non-OPEC production, we expect production to grow by 700,000 bpd this year, but our first outlook for 2018 makes sobering reading for those producers looking to restrain supply".

Oil inventories are near record highs in some parts of the world, and producers outside the Opec deal are increasing output.

The dollar .DXY rose to its highest in more than two weeks, adding to the pressure on oil, as solid readings on the US economy helped strengthen the case for the Federal Reserve to continue tightening monetary policy this year. New production from OPEC rivals will be more than enough to meet demand growth next year, the International Energy Agency said Wednesday in its first forecast for 2018.

Oil prices wallowed near their lowest levels in seven months early on Thursday, hurt by high global inventories and doubts over OPEC's ability to implement production cuts, according to Reuters.

Still, Brent crude fell to a session low of $46.70 a barrel, its weakest since May 5 and near six-month lows.

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

OPEC members Nigeria and Libya are exempted from the oil curb deal, and have raised their production, which largely undermined the oil cartel's efforts to rebalance the market.

The IEA forecast an increase in non-Opec output of 1.5 million barrels per day to 59.7 million bpd in 2018, with USA output to reach more than 14.1 million bpd.

Canada's oil-sands will increase production rapidly in the next three years, ranking only behind US shale as the biggest contributor to global supply growth.

"'Whatever it takes" might be the mantra, but the current form of "whatever' is not having as quick an impact as expected", the IEA said in a reference to Saudi Arabia's promise to do "whatever it takes" to rebalance oil supply and demand.

  • Zachary Reyes