Oil dips on concern over rising USA output, OPEC tensions

Alicia Cross
June 9, 2017

The data surprised analysts and undercut a growing view that inventories were finally showing steady progress towards drawing down to seasonal averages.

The U.S. Energy Information Administration (EIA) said on Tuesday U.S. crude oil production C-OUT-T-EIA could hit a record 10 million bpd next year, up from 9.3 million bpd now and nearly equaling top exporter Saudi Arabia.

USA light crude prices CLc1 were at $47.69 per barrel, down 50 cents.

The announcement comes after the Organization of the Petroleum Exporting Countries have come up with an agreement to extend oil production cuts by nine months to further help push oil prices up and avoid global oversupply.

August Brent crude oil closed at $48.16, down 1.96 or -3.91% and July WTI crude oil settled at $45.78, down 2.41 or -5.00%.

Commercial crude oil inventories in the States grew by 3.3m barrels during the week ending on 2 June (consensus: -3.5m) to reach 513.2m barrels, according to the Energy Information Administration, the US Department of Energy's statistical arm.

Although the dispute between the countries has not directly and immensely affected crude oil prices, the Brent crude futures recently rallied by 1% after concerns on the ongoing rift led to speculation of cut ties between the producing countries.

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"It's not clear what impact the spat will have on oil supplies", Citi Futures analyst Tim Evans wrote in a research note Monday. Crude slid to its lowest level since May 9, with USA benchmark futures down more than 10 percent in 10 days of trading.

"The OPEC agreement stands and is highly unlikely to change because of tension with Qatar. crude production in the Middle East and it will not change because of Qatar", said Oystein Berentsen, managing director for oil trading company Strong Petroleum.

OPEC announced the cut in December 2016. He pointed to high levels of crude production in the United States, the North Sea and the potential for rising output from Libya and Nigeria. Despite the increase in crude production, US crude inventories have decreased for eight straight weeks.

U.S. crude output has jumped more than 10 percent since mid-2016 to 9.34 million bpd, industry figures show.

Back in the day, an attack in Iran and tension between OPEC members Saudi Arabia and Qatar might have dominated.

OPEC is looking to reassert its dominance over global oil markets after realizing its recent production cuts did not have the desired impact because North American shale producers kept pumping, weighing on oil prices in the process.

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