Oil prices fall to six-month lows on near record high crude inventories

Oil prices
Oil prices have fallen about 12 per cent since May 25, just after OPEC announced it was extending the supply cut pact, but not making deeper cuts. PDC Energy photo.

Oil prices show “little in the way of upside potential”: Analyst

On Thursday, oil prices fell to their lowest in six months as investors grew more concerned about high global inventories and questioned OPEC’s ability to follow through on pledged production cuts.

Prices recovered slightly as trading continued, but a rise in the US dollar also pressured crude prices.

Brent crude settled $46.92/barrel.  US light crude was down by 27 cents to $44.46.

Both crude benchmarks have lost gains made in prices after OPEC announced its supply cut agreement late last year.

In the deal, OPEC along with allies, including Russia, pledged to cut their output in an effort to reduce the global oversupply.

Despite their efforts, worldwide crude inventories remain high and many traders are now anticipating further losses for oil prices.

“Oil prices are pinned near their lowest level in seven months,” Stephen Brennock, analyst at London brokerage PVM Oil Associates told Reuters.  He added the market showed “little in the way of upside potential”.

Oil prices have fallen about 12 per cent since May 25, just after OPEC announced pact participants were extending the cuts into the first quarter of 2018.

OPEC members Libya and Nigeria were exempted from the agreement.  Production from the two African nations had been hampered for years by unrest, but, recently both countries have boosted their output and are now undermining OPEC’s efforts.

“OPEC 2017 year-to-date exports are only down by 0.3 million barrels per day (b/d) from the October 2016 baseline,” analysts at AB Bernstein told Reuters.

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OPEC had pledged to cut 1.2 million b/d and other producers, including Russia, had agreed to decrease their production as well.  In total, participants had hoped to cut 1.8 million b/d.

Coupled with increasing production from Libya and Nigeria, the US has boosted its output by 10 per cent over the past year to 9.33 million b/d.

“Production growth in Libya and Nigeria and continued rig additions in the U.S. are complicating the picture, raising doubts on OPEC’s strategy,” AB Bernstein said.

Recently, the US Energy Information Administration raised its forecast for domestic production growth this year to 460,000 b/d from a predicted decline of 80,000 b/d last December.

OPEC now predicts US output to increase by 800,000 b/d in 2017.

The International Energy Agency is forecasting oil supplies to outpace demand next year, despite consumption hitting a record-high 100 million b/d.

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