US oil production seen thwarting OPEC effort to boost prices

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US oil production seen thwarting OPEC effort to boost prices

A worker passes an oil drilling rig, operated by Rosneft PJSC, in the Samotlor oilfield near Nizhnevartovsk, Russia. "The outlook for oil hinges on the effectiveness of the OPEC cuts relative to the supply increases from USA shale", said William O'Loughlin, analyst at Australia's Rivkin Securities.

"If oil prices remain below $50 a barrel, as they are now, that will keep gasoline prices low", said Pavel Molchanov, an energy analyst at the investment firm Raymond James.

For now, however, prices have hit a lull, falling almost 10 percent since the last Organization of the Petroleum Exporting Countries in late May.

The International Energy Agency (IEA) anticipates the global oil market will remain oversupplied into 2018 due to rising USA oil production and failure of some OPEC members to comply with production targets.

Gasoline supplies gained 1.794 million barrels, compared with a drop of 457,000 barrels seen, and distillates dropped 1.451 million barrels, compared with a build of 686,000 barrels expected.

It seems that oil inventories are particularly unpredictable as of late, with last week, the API and EIA reporting remarkably disparate figures in the amount of crude oil inventory movement-a 7.9-million-barrel discrepancy between the two that fanned the flames of an already shaky market.

Crude futures started the day on the front foot, as Saudi Arabia pledged to reduce exports to customers in July in an effort to help curb the glut in supply. The Saudi effort comes against a background of the pending public offering by Saudi Arabian Oil Co., known as Aramco.

As per the expert, there is too much oil on the market and the USA pumps more oil than before.

Traders said market intelligence firm Genscape had forecast a draw down of more than 1.8 million barrels at the Cushing, Oklahoma delivery point for U.S. crude futures.

As chart 1 alongside shows, break-even prices for U.S. shale oil regions have dropped substantially over 2013-2016.

A leading global energy market academic warned that crude prices could sink back to $30 a barrel if OPEC fails to make additional cuts to production.

The resurgence of US shale is already complicating OPEC's efforts to draw down global stocks in 2017, as well as threatening its market share in 2018.

The flow surge should show up in US imports data sometime in late July.

Chart 2 shows that a rebound in drilling activity doubled the USA oil rig count from its 2016 low.

"'Whatever it takes" might be the mantra, but the current form of "whatever' is not having as quick an impact as expected", the IEA said in a reference to Saudi Arabia's promise to do "whatever it takes" to rebalance oil supply and demand.

The agency continued to forecast an implied shortfall insupply relative to demand for the second quarter of this year.But it said slowing demand growth in China and Europe inparticular, as well as increasing supply, meant the deficitshould narrow to 500,000 bpd from a prior estimate of 700,000.

Taking a contrarian view, he also believes that a slump in crude prices could lead to a slump in demand. OPEC said declines in global oil inventories should continue for the year because of the multilateral deal. Still, the shares of those independent drillers tumbled Wednesday as crude prices sank.

In light of ongoing developments, the Economist Intelligence Unit (EIU) has lowered its medium-term oil price forecast, covering 2018-21 to an annual average of $55.5 per barrel, from US$58.4 per barrel previously.

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