Oil prices drop as U.S. inventories and OPEC output increase

OPEC and 10 other countries led by Russian Federation agreed last week to extend for nine months, to March, a production cut of 1.8 million barrels a day initially agreed on in November.

Russian compliance with the first round of cuts was slow, and there is skepticism that Moscow will offer aggressive compliance this time, particularly if the cuts look inadequate to change market conditions.

The forecast for United States total oil production for 2017 has been revised 90,000 bpd higher, to average 13.1 million bpd, following further rig additions and increased spending.

In its first forecast for 2018, the International Energy Agency said Wednesday it expected countries outside the cartel to increase production by about 1.5 million barrels per day, outstripping the growth in global demand.

In May, OPEC shipments were 25.6 million bpd, up from April's 25.02 million bpd, according to the vessel-tracking data.

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.

Under the deal to support the market, OPEC is curbing output by about 1.2 million bbl/d and Russian Federation and other non-OPEC producers are cutting by half as much.

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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. "But we'll see lower pump prices in the last 100 days of 2017 thanks [in part] to the post Labor Day demand slump".

US retail gas prices have fallen from a year-to-date peak in May. OPEC also lowered its estimate of oil supply growth from producers outside the group this year to 840,000 bbl/d from a previous forecast of 950,000 bbl/d, following the decision to extend the supply cut deal. That led to a downturn in crude oil prices as many market watchers were anticipating deeper cuts.

Shale supply has pushed USA crude production up by about 10 per cent over the a year ago to 9.3 million bpd - not far below the output of top exporter Saudi Arabia. Last year, there were considerable doubts as to whether a cutback deal was in fact even possible; and now OPEC has renewed it for another nine months!

China imported 12.5% more oil in the first four months of 2017, but imports from Saudi Arabia rose by a paltry 2.5%.

That may not sound like a lot, but it equates to about 260,000 bpd in British and USA exports to China.

Benchmark Brent crude was 28 cents higher at US$48.57 a barrel as of 1.53pm EDT (1753 GMT), while U.S. light crude was up 21 cents to US$46.29 a barrel.

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