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Oil prices fall on OPEC output increase, rising US crude stocks

14 Juin 2017

Despite expectations of a drop in USA crude stockpiles, fears of rising US shale production are expected to continue to weigh on Opec and its allies' efforts to rebalance supply and demand in the market.

Brent crude futures LCOc1 were at $48.28 per barrel at 0523 GMT, down 44 cents, or 0.9 percent, from their last close.

Crude prices have fall by more than 10 percent since late May, pulled down by an supply glut that persists despite a move led by the Organization of the Petroleum Exporting Countries (OPEC) to cut production by nearly 1.8 million barrels per day (bpd) until the end of the first quarter of 2018.

Adding to the supply surplus is rising USA production from shale drillers that has pushed US output up by 10 percent over the previous year to 9.3 million bpd, not far below levels by top exporter Saudi Arabia.

Opec's own compliance with the cuts has been questioned, and the producer group said in a report this week that its output rose by 336,000 barrels a day in May to 32.14-million barrels a day.

"Crude oil is still struggling to rebound", said Olivier Jakob, strategist at Petromatrix, adding that OPEC's gradual approach to rebalancing was giving USA producers time to drill new wells that were undermining the impact of the group's cuts. The report said the market was rebalancing at a "slower pace".

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The Organization of the Petroleum Exporting Countries (OPEC) pointed out that the incessant increase in United States extractive labor and rising pumping in Nigeria and Libya are some of the factors behind this result.

The market's weakness can be seen in technical activity surrounding Brent crude, where the 50-day moving average fell through the 200-day moving average on Monday, an indicator of a near-term weakening trend also known as a "death cross".

Trade data show OPEC shipments to customers averaged around 26 million bpd in the last six months of 2016 and are set to average around 25.3 million bpd in the first half of this year.

But in what would presumably be a positive development for OPEC, a Reuters analysis of hedging disclosures by the 30 largest US shale companies shows that most stayed on the sidelines in the first three months of this year, compared to a year ago when they rushed to lock in prices even though oil was trading $15 per barrel lower.

Data from the American Petroleum Institute (API) showed on Tuesday that USA crude stocks rose by 2.8-million barrels in the week to June 9 to 511.4-million, compared with the expectation for a decrease of 2.7-million barrels.

Oil prices fall on OPEC output increase, rising US crude stocks