March 19, 2018

Oil prices drop as market remains bloated despite OPEC efforts

19 May 2017, 10:01 | Melvin Schneider

The small move higher Tuesday put both Brent and U.S. futures on track to rise for a fifth day in a row.Kuwait's oil minister, Essam al-Marzouq, backed the previous day's agreement by Saudi Arabia and Russian Federation on the need to extend a crude output cut by OPEC and other producing countries of 1.8 million barrels per day (bpd) until the end of March next year.

Opec looks increasingly likely to agree to extend the agreement to cooperate on reducing oil production for a further nine months until the end of March 2017. The US EIA data showed that crude stockpiles fell 1.8 million barrels against expectations of a fall of 2.4 million barrels for the week ended May 12. The ongoing struggle to thin supplies has forced economists to cut their oil price forecasts.

There are areas in the enormous Permian and Eagle Ford shale fields in Texas where producers can break even at prices as low as $34 a barrel, according to Bloomberg Intelligence.

"I met the managers of all the main oil and gas companies in the country, and the minister of energy, behind closed doors and we discussed this issue", Russian President Vladimir Putin said in comments reported by Russian news agencies.

Oil prices vaulted on Wednesday after data showed a decline in USA stockpiles as refineries hiked output.

"It's the first time in 13 weeks that domestic production has been lower", Bob Yawger, director of the futures division at Mizuho Securities USA NY, said by telephone. "How much is going to come out?"

Cushing inventories recorded a slight build on the week after four successive draws.

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Libya's share of total OPEC oil export revenues has fluctuated since 2010 as the country's oil sector was disrupted during the civil war that overthrew the Gadhafi regime and, more recently, as warring factions in the country have repeatedly targeted oil sector installations.

But more cargoes are flowing right back into its tanks, which can hold 45 million barrels, as sellers struggle to find refiners to buy freshly loaded oil, the traders said. Record breaking USA inventory figures in the first quarter were also weighing on the oil prices.

While global inventories remain bloated, there are some signs that the OPEC cuts have dented supplies. "On the other, there are those who are focused on the real drawdowns that have started to occur in US oil stocks over the past month or so". The kingdom's vision 2030 plan depends heavily on the upcoming IPO so they are doing whatever it takes to maintain the oil prices above $50. USA benchmark crude was up 61 United States cents at US$49.96 a barrel.

The Brent contract is showing a similar pattern with support coming in at $52.26 and resistance, or a trigger point for an upside breakout, coming in at $53.41.

The supply cuts of 1.8 million barrels per day were initially agreed to run during the first half of 2017.

"People were impatient and thought we'd start drawing 10 million barrels a day since the first week of January", said Amrita Sen, chief oil analyst at Energy Aspects.

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