IEA: Market Shows Waning Confidence In Oil Rebalancing

Oil slides back towards 2-week lows as focus turns to US stockpile data

The slide has come amid a great clash between the historically dominant OPEC members - now attempting to support prices with a global production-cut deal and scrambling to diversify their economies - and upstart shale producers in the US, which have slashed costs, improved their efficiency and refinanced vast loads of debt in a drive to survive.

Oil prices slumped Thursday after the International Energy Agency said global oil supply rose in June as producers "opened the taps".

Many traders and analysts say most of the agreement's benefits are being reaped by USA producers, who are flooding the market.

A Saudi industry source also said the country planned to reduce shipments in August by more than 600,000 bpd, taking exports for that month to their lowest this year.

"Nigeria is beginning to recover from the difficulties it had as a result of the loss in oil production".

However, Nigeria and Libya expanded their production last month.

Make no mistake, OPEC members enjoy some of the cheapest crude production on simple accounting terms.

"U.S. inventory numbers confirmed that a drawdown (of excess inventories) was in train", ANZ bank said.

"Financial data suggests that while output might be gushing, profits are not and recent press reports quoted leading company executives saying that oil prices need to be around $50/bbl to maintain production growth", the IEA said.

The research house noted OPEC produces a heavier and sourer form of oil, while US, Nigeria and Libya's are light and sweet.

By the IEA's estimate, it's not just three members undermining OPEC's efforts. The U.S. Energy Information Administration on Tuesday lowered its production forecast for 2018 to 9.9 million barrels a day, slightly down from around 10 million before. We also expect to see upward revisions in EIA gas demand data that was under-reporting demand earlier in the year.

A coalition of 24 OPEC and non-OPEC countries including Russian Federation have been throttling their output since January to prop up prices. But at 495.4 million barrels, USA crude oil inventories were in the upper half of the average range for this time of year.

On the impact of the slow production on Nigeria's budget, Mr. Kachikwu said with projected 2.2 million barrels and benchmark price of price of $42.50 per barrel approved in the budget, the country lost about four months due to delay in the approval of the budget. Total compliance in the deal is at about 78 percent, down from the 95 percent reported in May.

However, market watchers should keep a careful eye on the numbers, because Libya and Nigeria may not actually be required to remove almost as much oil from the market as might be assumed.


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