There’s little in the way of encouraging news for global oil prices as traders recognise that OPEC should have boosted the size of its production cut at last month’s meeting and extended it for a year or more.
US oil production continues to expand, production from non-OPEC sources is rising and even though global demand is picking up with economic growth better prospects for more to come, there’s no sign of that mopping up the overhang any time soon.
July West Texas Intermediate crude futures rose for a second day on Monday, up 25 cents, or 0.6%, to settle $US46.08 a barrel in New York after a high at $46.71, while in London August Brent crude also rose for a second day, adding 14 cents, or 0.3%, to $US$48.29 a barrel.
Last week the US Energy Information Administration (the EIA) forecast yet another rise in US oil output next year to more than new daily record high.
The EIA says US crude production is forecast at 10.01 million barrels a day for 2018, up 0.4% from the previous outlook.
If achieved that will top the previous record high of 9.6 million barrels a day set in 1970 (when oil was a a couple of dollars a barrel).
The EIA forecasts OPEC crude oil production will average 32.3 million barrels per day (b/d) in 2017 and 32.8 million b/d in 2018, and it also forecasts that implied global petroleum and liquid fuels inventories will decline by about 0.2 million b/d in 2017 and then increase by an average of 0.1 million b/d in 2018.
On Monday the EIA forecast a 127,000 barrels a day rise in US shale crude output in July.
US crude production last week edged lower, with total output down 24,000 barrels a day to 9.318 million barrels, up more than 500,000 barrel a day from the same time in 2016.
“The fact that U.S. oil production has risen nearly [600,000 barrels a day] so far in 2017 remains a substantial underlying headwind on prices, as the output gains are offsetting roughly half of OPEC’s pledged cuts” of 1.2 million barrels, said Tyler Richey, co-editor for the Sevens Report, according to a report on marketwatch.com last Friday.
“On top of that, increasing doubts about the efficacy,” in its current form, of the production-cut agreement between the Organization of the Petroleum Exporting Countries and some major non-OPEC producers, “are weighing heavily on prices, and the path of least resistance is still lower medium term,” he said in his latest report.
The push to higher production continues to be signalled by the rise in the number of rigs being used to look for oil in the US. Baker Hughes on Friday reported that the number of active US oil rigs rose by 8 to 741 last week. That was the 21st weekly rise in a row. The total active US rig count, which includes oil and natural-gas rigs, increased by 11 to 927
Oil futures registered a third-straight weekly loss last week, down 3.8% for US crude and 3.6% for Brent.
One thing to keep an eye on is the brawl between Qatar (the world’s biggest gas producer), the Saudis, Egypt, the UAE and Bahrain.
This has raised speculation of the potential collapse of the OPEC-led production cap agreement of around 1.8 million barrels of oil a day (the biggest non OPEC producer, Russia, is part of the arrangement).
Those involved, with the exception of two countries—Bahrain and Egypt—are OPEC members. Qatar is under growing pressure and the ham-fisted intervention by president trump last week has raised the possibility of the production cap collapsing as Qatar and perhaps a couple of other producers going their own way.
On Sunday Qatar said it would stick to the OPEC agreement to cap output.
Qatar’s energy minister said the country remains committed to limiting its oil output through March 2018 under the agreement, despite the severing of its diplomatic relations with OPEC allies Saudi Arabia and the United Arab Emirates.
“Circumstances in the region shall not prevent the state of Qatar from honouring its international commitment of cutting its oil production,” Mohammed al-Sada said in an emailed statement to Wester media.
It comes after Saudi Arabia, the U.A.E., Egypt and Bahrain moved to sever ties with Qatar over accusations that the tiny Persian Gulf country has financed and harbored extremists. Qatar has denied the allegations.
Qatar is a small oil producer, accounting for around 2% of OPEC’s output, or 618,000 barrels a day.
The break with its OPEC allies in the gulf has raised suggestions that agreement will break down.
