US oil production seen thwarting OPEC effort to boost prices

Reuters

Reuters

So far in 2017 the United States Oil Fund LP (ETF) (NYSEARCA:USO) has fallen by more than 18 percent on fears that the deals being made at OPEC aren't enough to keep the price of oil low.

"This suggests that production cuts by 11 Opec members, who have committed to the reductions, are increasingly coming at the expense of market share". This comes on top of OPEC's most recent production report revealing a almost 340,000 barrels per day increase in May output versus April.

Two sources said Saudi Arabia could draw from inventories to meet local and export requirements if needed.

The TSX shed 4 points on Tuesday, with losses in financials, materials, and telecoms offsetting gains in info tech and energy.

In total, 18 companies reduced outstanding oil options, swaps or other derivatives positions by a total of 49 million barrels from the fourth quarter to the first quarter, the data shows.

"Crude oil is still struggling to rebound", said Olivier Jakob, strategist at Petromatrix, adding that Opec's gradual approach to rebalancing was giving USA producers time to drill new wells that were undermining the impact of the group's cuts.

But it said slowing demand growth in China and Europe in particular, as well as increasing supply, meant the deficit should narrow to 500,000 bpd from a prior estimate of 700,000.

The boost was prompted by the restoration of oil output in Libya and Nigeria, which are exempt from the OPEC agreement to cap production to stabilize prices.

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According tneighboursncy's latest report, there have yet to be supply disruptions, but exporters of Qatar's crude, condensate and liquefied natural gas have already faced some logistical troubles.

The measures helped stabilise oil prices at the beginning of the year, with the Global benchmark Brent crude sticking above US$50 per barrel.

Compared with a year ago, the group is more exposed to falling oil prices, with one-fifth fewer barrels hedged, or the equivalent of 28 million barrels, and three times more barrels rolling off, or the equivalent of 38 million barrels. US West Texas Intermediate (WTI) crude futures were at $45.94 per barrel, down 52 cents, or 1.1 per cent.

Overall sentiment remained downbeat however as the market has little confidence that production cuts by OPEC and Russian Federation are helping to drain excess supply.

The IEA's baseline for determining when oil stocks can be considered as having rebalanced is when they return to their five-year average, or 292 million barrels below where they are today.

Meanwhile, US drilling activity has continued apace, driving up US output by more than 10 per cent since mid-2016 to above 9.3 million bpd.

And at a meeting at the end of May, both OPEC and non-OPEC countries chose to roll over the output cuts for a further nine months.

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