Oil prices continue sliding as production limit optimism fades

Cornelia Mascio
Marzo 21, 2017

Global benchmark Brent crude fell as low as $51.01 a barrel this morning while West Texas Intermediate slipped to $47.84. However, U.S. shale producers can't continue to increase their output indefinitely.

The oil markets began the week on the back foot, with prices falling amid rising drilling activity in the United States as production from Opec countries remained steady.

The chart above shows how oil prices have fared since OPEC announced its supply cut previous year until date.

Low demand and rising production could weigh down palm oil prices.

The fact that US crude inventories are breaking records every week and oil prices have failed to post any gains so far in 2017 offers the evidence that the comeback in the USA oil industry is undermining the effectiveness of the OPEC deal. The 631 figure is its highest since September 25, 2015 (641), is up 63.0 percent year-over-year and has essentially doubled since bottoming out at 316 last May (+99.7 percent).

At a Vienna meeting in May, OPEC will decide on whether to ditch, continue or widen production cuts.

According to traders, the oil prices have been squeezed by rising USA drilling activity, in addition to supplies from OPEC countries despite their previous comments on cutting crude oil production by 1.8 million barrels per day, in association with Russian Federation. As of March 10 - the most recent date for which data is available - commercial crude oil inventories in the US totaled 528.2 million barrels, up from 492.2 million barrels a year earlier and 479.0 million barrels at the end of 2016. The U.S. shale oil drillers have used higher prices to add new rigs for the past eight weeks in a row.

Before the recent sell off, hedge fund managers had boosted their net long position in Brent and WTI by 530 million barrels between the middle of November and the middle of February.

"While oil prices are expected to recover towards the end of the year, they will remain in the $50-$60 band given the high level of stocks which will combine to put a cap on the price".

However, other market commentators expect oil markets will tighten soon, arguing that the Opec-led cuts will only start to take effect from April. Citigroup Inc. said OPEC's output reductions aimed at easing the glut are "real" and already are cleaning up the market. But shale oil companies' cost-cutting efforts of the past few years virtually ensure that we won't see a return to $100-per-barrel oil in the next few years.

Altre relazioniGrafFiotech

Discuti questo articolo

Segui i nostri GIORNALE