Published: Thu, June 15, 2017
Business | By Jorge Reeves

Oil prices fall as OPEC output, USA crude stockpiles rise

Oil prices fall as OPEC output, USA crude stockpiles rise

The American Petroleum Institute (API) reported an increase of 2.75 million barrels in crude oil inventories, against analysts' expectation of 2.7 million barrels of drawdown for the week ended June 9.

"World oil demand averaged 95.12 mb/d in 2016, up by 1.5 per cent year-on-year (y-o-y), with the largest increases in the Asia Pacific region, particularly China and India, as well as Western Europe, North America and Africa".

"The market tightening intended by OPEC has thus failed to materialize", Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report. "OPEC should rethink its strategy of trying to verbally and artificially drive oil prices higher, because the result of that strategy is very resilient USA production".

"The revisions to non-OPEC supply growth have been much greater than the upward adjustments to world oil demand growth, accentuating the imbalance in the market", it said.

"In 2018, we expect non-OPEC production to grow. slightly more than the expected increase in global demand", the International Energy Agency wrote in its latest monthly report.

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The measures helped stabilise oil prices at the beginning of the year, with the worldwide benchmark Brent crude sticking above US$50 per barrel.

Although the IEA said it expected demand to pick up in the second half of this year and to grow further next year, it said it also expects supply to continue to be robust even if Opec and the 11 non-Opec countries supporting its output restraint deal maintain a high level of compliance with the cuts.

Oil inventories in developed nations remain higher than before OPEC started cutting production.

"Based on our current numbers, assuming stable OPEC production, market deficits should be significant in 2H17, although adverse changes to demand and supply data can erode prospective stock draws", IEA said. Accordingly, higher shale oil supplies will weigh on prices.

This reduction in exports is close to the 500,000 bpd output cut pledged by the Saudis in terms of the November agreement, which was extended last month to March 2018.

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Non-cartel producers led by Russian Federation partially matched the cuts.

Low oil price will lead to rippling effect in the global market.

The news on the gasoline front also disappointed with inventories rising 1.794 million barrels, compared to expectations of a fall of 1.15 million barrels.

Meanwhile, U.S. drilling activity has continued apace RIG-OL-USA-BHI, driving up U.S. output C-OUT-T-EIA by more than 10 percent since mid-2016 to above 9.3 million bpd.

The U.S. alone will account for about half that increase in supply, the IEA said.

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