Oil prices drop to three-week low; OPEC crude output up

Oil prices dropped despite analysts’ expectations of a reduction in US crude stocks and the extension of the OPEC supply cut agreement. QEP Resources photo.

Oil prices down 3 per cent

Oil prices dropped 3 per cent on Wednesday, landing at a three-week low, after data showed output from Libya and Nigeria increased this month, boosting OPEC production for the first time this year.

Despite an expected drop in US crude stocks this week and an extension of the OPEC-led output cuts, Brent registered its fifth straight monthly decline in a row.

Brent futures for July fell $1.53 to $50.31/barrel on their last day as the front-month.  This was the lowest Brent close since May 10.  US WTI fell $1.34 to end the day at $48.32/barrel, the lowest since May 12.

During May, Brent registered its fifth straight monthly loss, falling almost 3 per cent while WTI faced its third straight monthly drop, down over 2 per cent.

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Reuters reports analysts are expecting US crude inventories to have drop by 2.5 million barrels last week.  Data from the American Petroleum Institute will be released on Wednesday afternoon while the US Energy Information Administration will release its crude stocks data on Thursday.  Both were delayed by one day due to the Memorial Day holiday.

OPEC output rose in May, the first monthly increase since the cartel implemented its supply cut pact in January.  Increases supply from Nigeria and Libya, OPEC members excluded from the pact due to unrest, offset improved compliance by other participants.

“Even if Libyan output levels from here for a few weeks, current relative strength provides an additional challenge to OPEC given the fact that the elevated Libyan production is not only eating into other OPEC members market share but is also forcing renewed weakening in Brent structure,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.

Libya’s National Oil Corporation said its production has risen to 827,000 barrels per day (b/d), above the three-year peak of 800,000 b/d reached earlier in May.