Published: Sun, June 11, 2017
Markets | By Noel Gibbs

Oil Falls to Three-Week Low on Rising U.S. Output

Russia's most powerful oil boss said the deal between OPEC and its partners to curb output won't stabilize the crude market over the long term as US shale fills the supply shortfall.

Let's start with U.S. crude oil prices in early morning trade on June 1, 2017.

Akin to a report card, it show compliance to the production cuts agreed upon late a year ago.

"We want to institutionalise cooperation between Opec and non-Opec producers", Saudi Energy Minister Khalid Al Falih said.

"This could lead to a drilling free-for-all in the USA and also see other signatories waver in their commitments", said Jeffrey Halley, senior market analyst at futures brokerage OANDA.

Oil prices extended gains on Thursday after government data showed a larger-than-expected drop in USA crude inventories as refinery activity increased and crude imports fell.

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Competition between the Organization of the Petroleum Exporting Countries (OPEC), which is curbing output, and US oil producers is likely to weigh on prices, SK innovation chief executive and president Kim Joon told reporters at a briefing.

OPEC members Libya and Nigeria are exempt from the cuts, while USA shale oil producers are not part of the agreement and have been ramping up production.

All dynamics are factored in: The IEA's growing outlook for global oil demand, the now confirmed OPEC and Russian production cuts, and a robust outlook for US production growth.

Last week, the group along with Russian Federation - which isn't part of Opec - chose to extend the agreement for a further nine months until March because the oil market had so far failed to rebalance. While U.S. stockpiles have edged lower, rising American production and drilling is fanning concerns that OPEC's efforts to trim a global glut will be hampered.

Commercial crude inventories fell 6.4 million barrels last week, following a 4-million-barrel decline the previous week.

Russia's May oil output was 10.94 million bpd, in line with its commitments to cut production, according to sources on Wednesday.

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Figure 2 shows the outlook for global oil supply and demand.

Oil slid below $50 a barrel last week after the agreement by the Organization of Petroleum Exporting Countries and its allies to prolong output curbs for nine months disappointed some investors hoping for more.

"We may or may not see more huge draws". It's what the market needs to get a little more excited about prices.

According to the EIA, crude inventories in the US market in the week to May 26 dropped by 6.4 million barrels per day to 509.9 million barrels, way more than the market forecast of a 4.4 million-barrel decline.

In Libya, the state oil firm said output had reached 827,000 bpd on Wednesday, around levels last seen in 2014.

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