USA oil production seen thwarting OPEC effort to boost prices

Oil surges

In its latest monthly report, the IEA expected a larger than expected increase in non-OPEC output of 700,000 for 2017 and the IEA also expected a further increase for 2018.

That suggests that the global crude oil market has got some support from the efforts of the Organization of the Petroleum Exporting Countries (Opec) and non-Opec oil producers to cut production.

Crude futures had shed more than 40 cents in the first few hours of trading Wednesday in Asia, in response to a build in U.S. crude and gasoline inventories reported by the American Petroleum Institute for the week ended June 9.

"The market tightening intended by OPEC has thus failed to materialize", Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report.

The flow surge should show up in us imports data sometime in late July. The rise has been driven by the oil price climbing back up after an initial deal by Opec and allies previous year to cut production by 1.8m barrels of oil a day from January 2017. "It's a huge resource, it's changed everything", said Gary N Ross, global head of oil at energy analysts Pira, of U.S. shale.

The weakness on the supply side was driven by non-OPEC production which fell by 0.8 Mb/d, its largest decline for nearly 25 years, said the report. In 2016, the top three crude oil producing countries were Saudi Arabia (10.46 mb/d), Russian Federation (10.29 mb/d) and the United States (8.88 mb/d).

With regards to the prices, the ASB indicated that the OPEC Reference Basket averaged $40.76/b in 2016, down from $49.49/b in 2015 and reaching the lowest yearly average since 2004.

Adding to the supply surplus is rising US production from shale drillers that has pushed USA output up by 10 percent over the past year to 9.3 million bpd, not far below levels by top exporter Saudi Arabia.

The U.S. alone will account for about half that increase in supply, the IEA said.

Despite OPEC and other producers curbs to production, oil stocks are near record highs in some regions of the world, while OPEC members exempted from the oil deal continue to increase production.

And at a meeting at the end of May, both OPEC and non-OPEC countries made a decision to roll over the output cuts for a further nine months. The EIA is forecast to report crude stockpiles slid 2.45 million barrels and motor fuel inventories dropped by 1.15 million barrels, according to the median estimate in the Bloomberg survey.

"Output from members bound by the production deal edged lower, which kept year-to-date compliance strong at 96 percent", the agency notes.


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