Published: Tue, March 21, 2017
Economy | By Annette Adams

Prices fall on fears of United States drillers counteracting OPEC cuts

Prices fall on fears of United States drillers counteracting OPEC cuts

Prices for front-month Brent crude futures LCOc1, the Global benchmark for oil, were at $51.76 per barrel at 0043 GMT, up 14 cents, or 0.3 percent, from their last close. However, a deal to cut output had the side-effect of triggering a surge in USA production and a jump in the inventories to an all-time high.

The Organization of the Petroleum Exporting Countries (OPEC), together with other producers including Russian Federation, has pledged to cut its output by nearly 1.8 million barrels per day (bpd) between January and June in an effort to prop up prices and rein in a global supply glut that has dogged markets for nearly three years.

OPEC members are cutting production in an effort to drive up oil prices, but a robust US output has prevented any significant rally. Two years ago, analysts assumed that oil prices below $60 would cause a huge decline in shale oil production.

"This unwinding of position is both a cause and reflection of the big fall in crude oil prices when the cracks in the OPEC / non-OPEC deal emerged". Exports of refined oil products in January rose slightly to 1.154 million bpd from 1.136 million bpd the month before.

In February, Saudi oil production staged a monthly rise of 180,000 bpd, but at 9.98 million bpd, its output remained below its agreed target of 10.06 million bpd and, according to tanker-tracking data, Riyadh is focussing its cutbacks on North America, the IEA said.

The Organization of the Petroleum Exporting Countries (OPEC) is curbing its output by about 1.2 million barrels per day (bpd) from January 1, the group's first reduction in eight years. May Brent crude LCOK7, -0.14% gave up 14 cents, or 0.3%, to $51.62 a barrel on the ICE Futures exchange in London. Shell, Total and Eni have already purchased 2 million barrels of crude oil from Iran.

Unfortunately for OPEC member Saudi Arabia oil stockpiles resisted change; the number remains about the same globally. Until then, it will be hard for oil prices to break higher.

"At 32.3 million bpd, the call on OPEC crude during the first quarter of 2017 is higher than average output of 31.9 million bpd so far this year, which could lead to a draw in global inventories", the IEA said, adding that it was not clear if the group will extend its supply agreement. It is obvious that fuel indexes will drop if OPEC says that they are not open to extending their production cuts. OPEC was also able to work out a deal with a consortium of non-OPEC producers such as Russian Federation and Venezuela to cut their production. The much faster return of US shale production and soft fuel prices have stimulated discussions within OPEC to extend the six-month deal until the end of the year.

Saudi Arabia "does not support OPEC intervening to alleviate the impacts of long-term structural imbalances", al-Falih said in his address at CERAWeek. Also, two years of disagreements between the oil producers threw the deal into doubt.

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