Oil price extends drop to 7 month lows, despite OPEC cuts

Judith Bessette
Junho 22, 2017

Since peaking in late February, crude has dropped by more than 20 percent.

More than 1 million front-month crude contracts changed hands on Wednesday, far exceeding the daily average of 560,000 contracts. Meanwhile, exports of Nigeria's benchmark Bonny Light crude oil are set to rise by 62 000 barrels per day in August, Reuters reported.

"The market wants proof that OPEC cuts are shifting petroleum balances, and it's not getting it".

"Overall, crude prices, now at multi month lows, will have to bear the brunt of supply glut in the near term although sharp decline in prices going forward could prompt the U.S. to slow down production, thereby providing a cushion".

Crude oil prices moved to fresh lows in early Tuesday trading on concerns that production from some OPEC members was thwarting rebalancing efforts.

The U.S. Energy Information Administration's weekly petroleum data for the week ended June 16 showed a 2.5 million decrease in American crude oil supplies from the previous week. The data briefly supported prices, but "updated inventory balances don't represent a game changer", said Headrick. The cuts were also agreed to be shared with other non-Opec oil producing nations.

"Reducing the glut of oil will be challenging", ANZ bank said on Monday.

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So far this year, oil has lost 20 per cent in value, its weakest performance for the first six months of the year since 1997.

OPEC and non-OPEC oil producers' compliance with a deal to cut global output has reached its highest in May since they agreed on the curbs a year ago, reaching 106 percent last month, a source familiar with the matter said on Tuesday. Yet production is rising in Nigeria and Libya, countries exempt from the deal, offsetting cuts by other OPEC members. At 5:01pm BST, the Brent front month contract for August delivery was down 2.39% or $1.12 at $45.79 per barrel, while WTI July contract - due to close at the end of United States business hours - was down 2.79% or $1.29 to $42.79 per barrel.

Hedge fund managers have become very bearish about the outlook for oil prices as production from countries outside OPEC grows and threatens to undermine the effectiveness of OPEC's output controls.

In China, oil demand growth has been slowing for some time, albeit from record levels.

USA crude production has been steadily growing and last week rose to 9.35 million bbl/d, up 20,000 bbl/d from the previous week, the EIA said.

"There is no reason to be overly optimistic at the moment", said Commerzbank analyst Carsten Fritsch. It's the USA shale producers.

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