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nsucurrent.com August 22, 2017


Oil falls as USA drilling undermines drive to tighten markets

30 May 2017, 06:21 | Ruby West

Oil falls as USA drilling undermines drive to tighten markets

Oil falls as USA drilling undermines drive to tighten markets

As a persistent increase in US drilling has undermined an OPEC-led push to tighten up the supply, prices of oil dipped on Monday.

Last week, OPEC producers and 11 participating non-OPEC countries including Russian Federation formally ratified the agreement first drafted last November to cut supplies by 1.76 million barrels per day.

There were expectations that U.S. oil output would continue to increase over the medium term which would undermine OPEC attempts to lower global inventories.

At the Multi Commodity Exchange, crude oil for delivery in July contract was trading higher by Rs 41 or 1.28 per cent at Rs 3,245 per barrel in a business turnover of 4,869 lots.

Brent crude futures LCOc1 were at $51.26 per barrel at 0500 GMT, down 20 cents, or 0.4 percent, from their last close.

Trading activity will be subdued on Monday due to public holidays in China, the United States and Britain. The contract ended the previous week down almost 3%.




Commerzbank analyst Carsten Fritsch called Monday's price moves little more than "intraday noise".

An initial agreement, in place since January, would have expired in June 2017.

The dire message was delivered by the Financial Post, which portrayed OPEC as "cutting itself into irrelevance" while USA and Canadian rig counts steadily increase (by 116 percent over the past year in the case of the latter, according to Baker Hughes data), inventories remain robust, and prices remain roughly where they were eight months ago.

Meanwhile, U.S. inventories dropped seven weeks in a row, though they still remain above the five-year average and production rose to the highest since August 2015. United States production has soared 10% since mid-2016 to more than 9.3-million barrels a day, close to top producer levels Russian Federation and Saudi Arabia.

The Post concludes that while the Saudis' earlier gambit to increase production and quash USA shale growth "was a risky, hard gamble, not for the feint of heart, and victory was far from assured, but today OPEC looks like it's playing to neither win nor lose". "We now have three weeks of combined inventories draw in crude, distillates, and gasoline so fundamentals speak of faster rebalancing in the market", Both Bryan Goh and Wood Mackenzie believes that the price of oil will revamp on the latter part of the year.

Analysts say that key to reining in ongoing oversupply will be to reduce bloated global fuel inventories.



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