Stockpiles Fall Less Than Expected, Oil Prices Drop

Cornelia Mascio
Giugno 19, 2017

Last time the price of oil fell, the stock markets fell with it.

With supplies plentiful, strong demand is needed to support the market, but there are signs of a slowdown.

And Brent has dropped back below US$50 since the Opec meeting and was trading at US$48.17 on Wednesday.

Oil slumped to the lowest close in seven months this week as concerns grew that rising U.S. supplies will offset the production curbs by the Organization of Petroleum Exporting Countries and allies including Russian Federation.

Oil has slumped despite output cuts of 1.8 million barrels a day by the Organization of the Petroleum Exporting Countries and non-OPEC producers including Russian Federation. Most analysts surveyed by Bloomberg had forecast a decline.

The resurgence of USA shale is already complicating OPEC's efforts to draw down global stocks in 2017, as well as threatening its market share in 2018.

"That just adds fuel to the fire about the lack of efficacy of those production cuts", said Gene McGillian, research manager at Tradition Energy.

Oil fell yesterday after reports showed global supply was rising and U.S. crude inventories were still increasing, raising concerns the market could stay oversupplied for longer than expected.

It said the International Energy Agency has recently published a forecast, stating that the global refinery is expected to go up by 2.7 million barrels per day (bpd) between July and August with refineries processing nearly 82 million bpd for the same period.

Growth in oil supply will outstrip growth in demand during 2018, driven by increasing production from U.S. shale and other countries outside Opec, the International Energy Agency (IEA) said.

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.

At this point in the cycle, it may be time for OPEC and US shale drillers to heed Stein's Law.

US drilling rig counts due later in the day on Friday could add further pressure, if it shows more were added.

Rising U.S. oil output, particularly from shale drillers, is contributing to the ineffectiveness of the OPEC-led cuts. The International Energy Agency is predicting an even larger increase.

Economic expansion in China, a key component of world oil demand growth for many years, is now slowing.

Nevertheless, dynamic growth in output in the U.S., particularly by shale producers, seems to be slowing down the rebalancing process.

Qatar crisis will have a very little impact on global oil prices as the country is not a major producer of Oil. The Standard & Poors Energy Sector Index showed a 2.1 drop, overall, with shares of Exxon Mobil falling by 1.4 percent, to hit $81.83; Chevron also fell by almost 2 percent, to hit $106.18.

American producers have benefitted from the Opec and non-Opec efforts to push prices higher.

Shale firms have also benefited from plentiful funding from private equity investors with a relatively long-term view on the market.

Crude prices will need to remain relatively low until more of the hedges have expired, private equity funding has slowed and drilling moderates to a more sustainable pace.

Crude prices fell in Asia on Wednesday after disappointing figures from industry on US inventories overnight and shrugging off upbeat industrial figures from China, though the market is awaiting official data later in the day.

Overnight, crude futures settle higher on Tuesday as investors looked ahead to fresh USA crude inventory data expected to show draw in crude stockpiles, offsetting concerns about an uptick in output from OPEC members.

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