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Oil markets edgy ahead of OPEC meetings in May

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Oil prices came under pressure last week as the Saudi energy minister Khalid Al-Falih said that it was too early to talk about extending the oil output cuts that were implemented in January this year.

His comments pushed oil prices lower on the day after oil prices rose in anticipation that Saudi Arabia would lobby OPEC members to continue with the production cuts in order to reduce the global supply glut.

However, the oil minister said that the major oil producing nations would continue their efforts to reduce the supply glut, noting that the group will do what is necessary to balance the oil markets.

OPEC and Russia had agreed last year to curb oil production which was expected to cut off close to 2% of the global oil supply in a bid to support oil prices.

Following his comments, Brent crude oil fell 0.9% on the ICE Futures exchange, while the WTI futures fell 0.8% on Tuesday and closed the week 6.18% lower closing below $50 a barrel.

Crude Oil Futures ($49.63)
Crude Oil Futures ($49.63)

U.S. Oil producers continue to increase production

Besides the upcoming OPEC meeting, oil prices have been tracking the number of other developments, which included the increase in the U.S. drilling rigs as well. Drilling is expected to increase oil production by 123,000 barrels per day from May 2017 onwards, the U.S. Energy Information Administration said, noting that it would be the steepest monthly increase in two years.

The OPEC’s monthly market report shows that U.S. oil production is also expected to increase by 200,000 bpd to 540,000 bpd this year. The threat from the U.S. oil producers was quite evident in the OPEC’s monthly report, and this is something which the member nations will most likely discuss in the upcoming meeting, scheduled in Vienna on May 25th.

The comparatively higher prices have led to the U.S. oil companies quickly increasing their production which has added a bearish outlook for the international oil prices.

U.S. On-shore crude oil production and oil rig count (Source: Baker Hughes/OPEC)
U.S. On-shore crude oil production and oil rig count (Source: Baker Hughes/OPEC)

OPEC nations, which agreed to the production cuts, amid some exceptions said that the oil out fell in March, according to its latest monthly market report. The group’s production based on secondary sources said that oil output fell 157,000 barrels per day to 31.9 million last month.

Both the WTI and the ICE Brent futures closed lower in March, down 7.1% and 6.2% respectively for the first time this year. The decline in the oil futures positions was also partly attributed to the seasonal refinery maintenance periods as well.

While OPEC nations, a party to the output cuts collectively helped to lower production, most of the declines came from Libya and Nigeria on account of supply disruptions and political unrest.

Crude Oil Outlook: Saudi Arabia Proposing to Extend Oil Freeze

Saudi Arabia said that it cut production by 111,000 barrels per day in March to 9.9m barrels per day. So far, according to OPEC and Saudi officials, there has been a high level of compliance among OPEC and non-OPEC nations in following the supply cuts. Market participants were initially very skeptical on the deal noting the past history of non-compliance among OPEC nations when it comes to reporting on the oil production levels.

The Paris-based International Energy Agency (IEA) said that global oil demand would be slowing in the coming year for the second time. The IEA forecasts that demand growth will fall by 1.3 million barrels a day and note that this was still an optimistic forecast.

Meanwhile, the OPEC’s monthly report suggests that demand in 2017 is projected to be around 32.2 million bpd, which is still 0.6 million bpd higher from 2016.

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