Published: Fri, June 16, 2017
Economy | By Annette Adams

Saudi Arabia may be targeting USA inventories to prop up oil prices

Non-OPEC member countries are expected to boost their combined oil supplies by 1.5 million barrels a day next year, which by itself can satisfy the expected global demand growth of 1.4 million barrels a day, CNBC reported citing a report from the International Energy Agency.

If correct, that could keep a lid on oil and energy prices as a glut of supply grows despite the efforts of countries in the OPEC cartel and allies like Russian Federation to limit production.

OPEC and other exporters such as Russian Federation have agreed to keep production nearly 1.8 million barrels per day (bpd) below the levels pumped at the end of previous year and not to increase output until the end of the first quarter of 2018. According to the authority, non-OPEC production in 2018 will increase by 1.5 million barrels daily - a rate that will surpass the growth of global demand.

"The outlook for oil hinges on the effectiveness of the OPEC cuts relative to the supply increases from U.S. shale", said William O'Loughlin, analyst at Australia's Rivkin Securities.

The Organisation of the Petroleum Exporting Countries agreed to extend that deal that began in January through March 2018, but ongoing growth in USA production, along with exemptions for non-members Nigeria and Libya, have offset those cuts to some extent.

Oil markets tanked by almost 4% on Wednesday, with WTI hitting its lowest level since November, following U.S. Energy Information Administration data that showed the decrease in crude stockpiles last week was smaller than anticipated. Demand for OPEC crude this year is projected to increase by 300,000 bpd to average 32m bpd.

Oil prices edged lower in European trading on Thursday, as data showing U.S crude stockpiles shrank by less than anticipated, while gasoline inventories increased, underlined fears over a global supply glut.

In their opinion, the truth is that the country's shale business now produces less than 5.5 million barrels per day or just 5.6 percent of the world's daily sum.

According to the analyst, out of the 8 million barrels per day imported into the United States, 1 million come from Saudis.

According to Wednesday data from the EIA, crude-oil stockpiles decreased by 1.7 million barrels in the week ended June 9, falling short of expectations for a 2.6 million barrel drop from analysts and traders surveyed by the Wall Street Journal. That was despite the ongoing output cuts by the Organization of the Petroleum Exporting Countries and other producers including Russian Federation.

The IEA's findings were not good news for the Saudis, who have repeatedly lowered their own production to compensate for rogue nations intent on pumping full-out and whose crude exports are expected to fall below 7 million bpd this summer. Despite the deal, few OPEC members like Nigeria and Libya have been exempt from cutting and their rising output.

The US Government's Energy Information Administration has forecasted domestic output growth to 460,000bpd this year revising the earlier prediction of a decline of 80,000bpd in December. This suggests global oversupply will persist for a while.

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