Oil ends lower as rising USA rig count, G-20 statement unnerves

Ivan Schwartz
March 21, 2017

Prices for front-month Brent crude futures LCOc1, the worldwide benchmark for oil, were at $51.76 per barrel at 0043 GMT, up 14 cents, or 0.3 percent, from their last close. But the USA has a surplus greater than 20 percent of a five-year average level.

Crude settled lower on Monday, despite reports that OPEC could extend its deal to cut production with non-members beyond June, while investors continued to fret about the growing levels of USA oil production and inventories. "As such, the combination of robust demand and weaker global supply leading to rebalanced markets will not be de-railed by US shale oil", said Jeremy Baker, Senior Commodity Strategist, at Vontobel Asset Management.

The cartel spent two years prioritizing export volume over prices to corner the market and hit the booming American oil industry, but was forced to cut production as lower earnings led to a record budget deficit. At 631 rigs, this is the biggest count since September 2015.

Opec will meet 25 May in Vienna, Austria, to decide whether to extend its 1.2m bpd production cut.

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The International Energy Agency (IEA) has forecast Iran expanding its crude oil production by 400,000 barrels per day to 4.15 million bpd by 2022.

The rising USA output is offsetting production cuts agreed upon by the Organization of the Petroleum Exporting Countries and other major producers including Russian Federation. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 1.4% at $48.08 a barrel.

Funds amassed a record 1.05 billion barrels of long positions, while short positions were cut to just 102 million barrels, the smallest number since oil prices started slumping in 2014. It also expects the cartel to maintain its agreed six-month production quota at around 32.5m barrels per day (bpd) for the rest of the year. On the contrary, oil prices have fallen sharply below the pre-output-cut levels as seen in the chart below.

Saudi Arabia's domestic crude inventories fell further to 261.963 million barrels in January from 272.621 million barrels in December, the JODI data showed. "They might need to reduce shipments more or extend this beyond June". Gazprom Neft increased oil production by 43% to 163,400 tonnes [1.2 mln barrels per day]. The cuts came as prices tumbled below $50 a barrel for the first time this year, and anxious executives discussed rising USA rig counts at an industry meeting in Houston. That said, it also doesn't factor in the risk of shale production continuing to grow.

Other reports by GizPress

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