Oil prices down slightly on US production concerns

Oil prices

Oil prices fell slightly in trading on Friday as investors weighed concerns about increased US production. Anadarko photo.

Oil prices down modestly in Friday trading

Oil prices fell slightly in trading on Friday after two days of gains as concerns over rising US production outweighed optimism over the possible extension of the OPEC supply cut deal.

Brent was down by 21 cents to $50.56/barrel at 11:19 a.m. and US light crude was down 29 cents to $47.54.

Andrew Lipow, president of Lipow Oil Associates in Houston told Reuters that after a 1 per cent rally in oil prices on Thursday, “now we’re seeing a pullback in price.”

“The market overall is trying to balance OPEC and non-OPEC production cuts with increasing production all over the world as they reduce their costs and improve their efficiency.”

In January, OPEC and some non-member nations including Russia agreed to reduce production by 1.8 million barrels per day (b/d) for the first six months of 2017.  Compliance with the deal has so far been high.

Last week, a larger-than-expected fall in US crude inventories reported by the US Energy Information Administration suggests the OPEC supply cut pact may be having an impact on the market, according to analysts who spoke with Reuters.

However, US crude production has increased by over 10 per cent since the middle of last year and now sits at over 9.3 million b/d.  US output is closing in on production levels of top producers Russia and Saudi Arabia.

Rystad Energy, a Norwegian consulting firm said US output had gained “significant momentum.”

The firm said that excluding Alaskan output, US production will rise by 390,000 b/d from May 2017 to December 2017, should the US light crude price remain at $50/barrel.

Andrew Lipow says the market is also “slowly taking note” of increased Canadian production.

OPEC and non-members participating in the supply cut pact will meet in Vienna on May 25 to decide whether to extend the reductions to the end of the year and possibly into the first quarter of 2018.

Despite this, Commerzbank said it was sceptical about the cartel’s ability to support prices in the long term.

“Owing to the rapid recovery in U.S. oil production, OPEC obviously only has limited influence on prices via supply curbs,” it said in a note, adding an extension “is unlikely to be more successful than the cuts implemented so far in the longer-term.”

The weekly rig count report released by Baker Hughes shows the rig numbers in the US increased by eight to land at 855 this week, which is not what many investors were looking for.

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said “The market needs to be looking for a sign you’ve been getting a response [to lower prices] from U.S. producers. That’s part of what’s going to keep this floor in on the oil prices,” he said.

Posted in: Energy Financial

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