Agency says OPEC compliance with output cut fell in June

14 July, 2017, 00:38 | Author: Lorena Waters
  • Oil slides back towards 2-week lows as focus turns to US stockpile data

Lower crude oil prices have a negative impact on oil producers such as Hess (HES), Bonanza Creek Energy (BCEI), Carrizo Oil & Gas (CRZO), and Comstock Resources (CRK).

Many nations have such an abundance of it that their economies are completely reliant on oil, making them heavily vulnerable to price fluctuations.

Prices drifted lower during Thursday's Asian session with buyers unable to make any impression. Uncertainty remains regarding the duration of and adherence to the current OPEC production cuts, which could influence prices in either direction. According to the latest estimates, compliance declined to 78% for June from 95% in May.

And production in Saudi Arabia has increased to meet summer electricity demand.

The International Energy Agency says the rate of compliance by OPEC countries to their agreed production cuts fell sharply in June, one reason why oil prices dropped to 2017 lows in recent weeks. There are some evidences that Russian Federation is also against any further extension of the deal because such an extension will only make oil markets more volatile after it expires, when everyone returns to their normal output rates.

Oil futures rose, maintaining some gains from earlier in the day, as a report showing hefty drawdowns in US crude inventories was offset by data pointing to lackluster gasoline demand.

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The minister said the oil production benchamark in the 2017 Budget was 2.2 million barrels per day (mbpd), whereas the country was producing about 1.7 mbpd.

Nevertheless, global oil inventories remain 266mn barrels above the five-year average with producers still finding it very hard to bring total inventories down. U.S. WTI futures were up 1.58 percent at 10:30 a.m. HK/SIN, trading at $45.75 per barrel.

"We opine the industry is more focused on robust activity at stable oil prices, rather than very high oil prices at this juncture, which is not sustainable", it said.

"Provided there is strong compliance with OPEC's cuts, that would imply a hefty stock draw, even if Libya and Nigeria recover further", it said. It seems that Russian Federation may oppose any attempts to deepen the oil production cuts as it may give the impression that OPEC and its partners in the deal are uncertain about its effectiveness in reducing global supplies. Prices fell after EIA reported builds in total USA crude oil and petroleum products inventories that were above the five-year average during the weeks ending June 2 and June 9. Canada and Brazil are likely to boost production as well.

The group's output climbed last month to the highest level this year as members exempt from the agreement to cut - Nigeria and Libya - pumped more and others slipped in delivering their promised cutbacks. For 2018, total demand is forecast to hit 100 million barrels a day in the third quarter and average 99.4 million barrels a day for the full year.

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