Published: Mon, June 19, 2017
Economy | By Annette Adams

Global oil markets expected to tighten in Q3

A report earlier this week found growing oil supply is set to outpace demand next year as production outside Opec is expected to grow twice as quickly in 2018 as it will this year.

"Gasoline consumption is now about 5 percent lower than in the same week previous year", Thomas Pugh, a commodities economist at London-based Capital Economics, said in a note.

The Energy Information Administration said Wednesday that gasoline inventories, one of the products that crude is refined into, unexpectedly rose by roughly 2m barrels against expectations for a decline of 457,000 barrels.

Both Brent and USA crude have given up all the gains since the initial OPEC agreement in late November.

Originally, Opec members had agreed to cut production for six months beginning from the start of the year in a bid to reduce the glut of oil supplies on the shore up prices.

"Production growth in Libya and Nigeria and continued rig additions in the USA are complicating the picture, raising doubts on OPEC's strategy", AB Bernstein said, reports CNBC.

Opec now expects USA production to increase by 800,000 barrels per day in 2017.

The impact of OPEC-led cuts has been undermined by rising USA oil output. A rise in United States crude oil exports could have also contributed to the fall in inventories.

In Nigeria, production was up more than 174,000 bpd to 1.68 million bpd as supplies sidelined by militant attacks on energy infrastructure past year came back into operation.

However, oil stocks are near record highs in many regions across the world as traders anticipate further fall in prices.

Bottom line, the IEA report hints that the oil market will continue to struggle and American drillers will play a bigger role in the oil market's "drama", CNBC noted. Prices slid $1.72, or 3.5 percent, to $47 Wednesday.

"We've been running at historically high levels on the refinery side, which is pushing out more product".

The global oil market will now focus on the weekly change in the oil rig count data to be released Friday. "OPEC should rethink its strategy of trying to verbally and artificially drive oil prices higher, because the result of that strategy is very resilient USA production".

Many U.S. shale producers insist they can drill wells profitably at prices well below $50 per barrel and in some cases below $40.

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