Analysts concerned flailing oil prices up odds of reduced OPEC compliance
Oil prices fell about one percent on Monday, continuing their bumpy ride on the market since late May when prices dropped 13 per cent on rising production in the United States, Libya and Nigeria that overshadowed the OPEC supply cut agreement.
Brent futures for August settled down 46 cents to $46.91/barrel, and one day before the July contract expires, US crude for July ended the day down 54 cents to $44.20/barrel.
Both benchmarks ended the day more than 15 per cent down since late May when OPEC supply pact participants agreed to extend their output cut into March of next year.
“Lack of major upside price response to the OPEC output cuts upping the odds of reduced compliance to the agreement in our opinion,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note to Reuters.
As Nigeria and Libya brought their production back online, OPEC production jumped in May. The two African countries were exempt from the OPEC pact because protests had dramatically impacted their production.
Along with calming unrest, Libya’s state oil company settled a dispute with Germany’s Wintershall. Currently, Libyan oil output is now at 885,000 barrels per day (b/d), according to a Libyan oil source.
In a Reuters report, analysts say they are concerned that the steady jump in US production will only add to the global glut of crude. On Friday, Baker Hughes reported the US rig count rose for a 22nd straight week, and now sits at 747, the highest since April 2015.
Goldman Sachs says if the US rig count holds, Q4 domestic oil production will rise 770,000 b/d from the same period last year in the Permian, Eagle Ford, Bakken and Niobarara shale oilfields.
“There is no reason to be overly optimistic at the moment,” Commerzbank analyst Carsten Fritsch told Reuters.
Along with rising global production, there are indicators that Asian demand for crude is slowing, even thought China increased its 2017 import quotas for its refineries.
In May, Japan’s customs-cleared crude imports fell by 13.5 per cent from a year earlier. India’s crude imports were down by 4.2 per cent in May compared to 2016.
Saudi Arabia reduced its crude exports by 7 million b/d, according to official data. Saudi Energy Minister Khalid al-Falih has said in the past that the oil market needs time to rebalance and that Saudi Arabia will do “whatever it takes” to achieve make it happen.
