Lower oil prices set to test United States shale drillers: Kemp
- Author: Zachary Reyes Jun 23, 2017,
Jun 23, 2017, 15:27
West Texas Intermediate (WTI) crude futures were down 12 cents or 0.3 percent at $44.61 per barrel.Crude futures benchmarks are sitting near their lowest levels since late November past year when production cuts led by the Petroleum Exporting Countries (OPEC) were first announced.
Oil prices are rallying after trading around seven-month lows overnight amid concerns the Organisation of the Petroleum Exporting Countries' (Opec) output cuts are not doing enough to curb the global oversupply.
But OPEC's monthly report showed output from the group rose by 336,000 bpd in May to 32.14 million bpd, led by a recovery in Nigeria and Libya which are exempt from supply cuts. "It's a huge resource, it's changed everything", said Gary N Ross, global head of oil at energy analysts Pira, of United States shale.
You see, American shale oil is expensive to produce, but when oil prices rise, like they did after November 30, this shale oil becomes much more profitable.
Efforts to combat the oil glut have not been helped by figures this week that showed Opec as a whole increased production in May because of higher output by Nigeria and Libya, which are not covered by the recent cuts deal.
By 4:40pm EST, both WTI and Brent Crude started to slide on the news at $46.10 and $48.37 respectively.
"There was also a sign of slowing energy demand in China, the world's second largest oil consumer, with a recent survey showing April growth in the country's services sector at its slowest in nearly a year", OPEC added. "In contrast, OPEC production recorded another year of solid growth (1.2 Mb/d), with Iran (0.7 Mb/d), Iraq (0.4 Mb/d) and Saudi Arabia (0.4 Mb/d) more than accounting for the increase".
OPEC noted the continued high compliance by its members with the supply deal, adding that inventories in industrialised countries dropped in April, even though they were still 251 million barrels above the five-year average.
"Production growth in Libya and Nigeria and continued rig additions in the USA are complicating the picture, raising doubts on OPEC's strategy", AB Bernstein said, reports CNBC.