Oil prices fall after data shows increased US production

Oil prices
Oil prices fell on increasing concerns on increased US production, OPEC exports. BP photo.

Oil prices down 2.5 per cent

Oil prices fell 3 per cent in trading on Friday after news that OPEC exports have risen and weekly data released by the US Energy Information Administration showed American production had also increased.

Brent futures were down $1.36 to $46.75/barrel at 1:35 p.m. EDT,after falling to $46.28, the weakest level in over a week.  US WTI was down by $1.28 to $44.24/barrel.

Earlier this week, oil prices rose, but are now on track to mark weekly drops of over 2.5 per cent, a sixth weekly decline in the past seven.

“Bearish news from the supply side has dragged prices down. The spotlight seems to be on the problem of oversupply once again,” Frank Schallenberger, head of commodity research at LBBW in Stuttgart told Reuters.

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Data from the US Energy Information Administration released on Thursday showed US oil production increased to 9.34 million barrels per day (b/d), reversing a drop in the week prior that was due to maintenance and Tropical Storm Cindy.

US production increased at a time when OPEC exports were 2 million b/d higher in June than the same period last year and now sit at the highest level this year.

“We’ve seen exports last month from OPEC much stronger than they were in April and May, seemingly indifferent to the OPEC production cut deal,” Matt Smith, director of commodity research at Clipperdata told Reuters.

According to Reuters, on Friday, OPEC supply pact participant Russia said it was open to consider revising the parameters of the agreement if necessary.

Reuters reports OPEC sources welcomed Russia’s comments, saying they may further discussions on deepening production cuts.

On July 24 the group monitoring the efficacy of the OPEC deal will meet in Russia.  They may recommend adjusting the agreement.

Lost in the EIA data was the news that US crude inventories fell by more than expected, down by 6.3 million barrels in the week ending June 30.  US crude stocks now sit at 502.9 million barrels, the lowest since January.

Hans van Cleef, senior energy economist at ABN Amro told Reuters that the push-and-pull between bearish and bullish factors will keep volatility high.

“In the near term this leaves us with a volatile trading range of roughly $45-50 a barrel.”

Morgan Stanley said  that if OPEC was unable to balance the market, change would likely be forced on it by oil prices.

The bank added that WTI price between $46 to $50/barrel would likely prevent US production from increasing in the mid- to long-term, adding prices need to be “in the low $40s” for US output to fall significantly.

Morgan Stanley says it expects WTI to remain below $50/barrel until mid-2018.