Oil producers at ease as output deal reaches half

by Ben Pena April 19, 2017, 1:48
Oil producers at ease as output deal reaches half

At a time when OPEC and other producing nations have been trying to cut output, government drilling data showed USA shale production next month was set to rise to 5.19 million barrels per day (bpd). WTI futures settled at US$52.41 a barrel, down 24 cents. U.S.

The oil market has been caught in a tug-of-war between forecasts that OPEC production will remain at reduced rates and bearish reports suggesting USA production is rising, preserving a supply overhang in the market.

Benchmark Brent crude futures fell 48.8 cents at $55.40 as of 0315 GMT.

More barrels could be on their way to market from United States shale fields as financial companies were investing billions in production, a Reuters analysis showed.

The latest monthly market report from OPEC economists said contributing members are cutting more than the agreement outlines. Before the weekend, gas prices rose an average of 12 cents in 19 days, nationwide; and 13 cents in 14 days, in Florida.

The production-cut agreement spurred a change in market structure that meant traders had less incentive to store oil at sea, prompting the flow of supplies floating on ships to onshore sites. OPEC ministers are scheduled to gather in Vienna on May 25 to discuss whether to extend the curbs.

US drillers last week added rigs for a 13th straight week.

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Investors have been concerned that increasing USA output would derail major oil producers' attempts to cut production. Crude fell even as Saudi Arabia's Energy Minister Khalid Al-Falih said Monday that the oil market is on the road to re-balancing.

The Paris-based IEA, which advises industrial nations on energy policy, said on Thursday supply and demand in the global oil market was close to matching after a fall in stockpiles in developed countries in March.

Members of OPEC agreed to cut about 1.2 million barrels of oil per day through a deal that went into force in January.

The country imported 38.95 million mt (9.21 million b/d) of crude oil in March, rising 19.4% year on year, preliminary data released April 13 by the General Administration of Customs showed.

"With a continuation of the OPEC/non-OPEC producer deal in the second half of 2017 and the expected associated inventory draw-down, we expect oil prices to move above $60 a barrel by the second half of the year", the analysts said in a report obtained by CNBC. "As the EIA explains, "[much] of Chinese production growth from 2012 through 2015 was driven by more expensive drilling and production techniques, such as enhanced oil recovery (EOR) in older fields".

Julian Lee, oil strategist for Bloomberg First Word, notes that "the grand re-balancing of supply and demand has yet to take place" and that "the OPEC output cut was also meant to usher in a period when demand would start running ahead of supply, and when inventories would be reduced".

Crude declined below $53 a barrel as the ramp-up of shale drilling spurred speculation that surging American output will offset OPEC-led efforts to cut a global supply surplus.


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