Published: Tue, March 21, 2017
Global Media | By Meredith Barber

Oil slides as United States production shows no signs of slowing down

Oil slides as United States production shows no signs of slowing down

Crude prices dipped over a percent on Monday, as investors lose confidence in oil following strong drilling data from the United States and pessimism about OPEC-led output cuts. It showed that hedge funds decreased their net long positions in US WTI (West Texas Intermediate) crude oil contracts by 86,784 contracts to 288,774 contracts in the week ending March 14, 2017-compared to the previous week.

With Baker Hughes data still a factor in trading, the price for Brent crude oil was down 1.3 percent from Friday's close to $51.09 per barrel about a half hour before the start of trading in NY.

U.S. drillers added 14 oil rigs in the week to 17 March, bringing the total up to 631. This indicates the USA shale oil industry, hit by low energy prices, is returning to the market.

In the meantime, Iran has the right to boost oil output by just 90,000 bpd under the terms of the deal to curb excessive production by members of the Organization of Petroleum Exporting Countries (OPEC) and a number of major crude oil producers outside the cartel, including Russian Federation. Nevertheless, some analysts are hoping that the full outcome of OPEC's production cuts haven't been seen yet and that despite the increase in USA production OPEC's cuts will show effect in April, as demand from refineries increases.

However, other market commentators expect oil markets will tighten soon, arguing that the Opec-led cuts will only start to take effect from April.

The IEA said global inventories rose in January for the first time in six months despite OPEC output cuts, but said if it stuck to its production curbs, the market should see a deficit of 500,000 barrels per day (bpd) in the first half. However, if OPEC doesn't extend its deal, it could pressure crude oil prices. Shell, Total and Eni have already purchased 2 million barrels of crude oil from Iran. Crude could remain in a narrow range, much like last week if investors continue to weigh the impact of the first oil cut from OPEC against the rising US shale oil output and high inventories.

"Sentiment remains bearish towards oil and the fading optimism over the effectiveness of [the Organization of the Petroleum Exporting Countries'] supply cut deal could encourage sellers to attack prices further", he said.

Like this: