Oil prices fall even as OPEC extends output cut

The Dakota Access Pipeline began flowing this week through the thousand-mile route from North Dakota to Illinois

While US stockpiles have edged lower, rising US production and drilling is sowing doubt over OPEC's efforts to trim a global glut.

Brent crude oil futures were at $50.21 per barrel at 0308 GMT, up 26 cents, or 0.5 per cent.

"Now that U.S. President Trump has announced that the U.S. will be withdrawing from the Paris Climate Agreement, it is expected that the U.S. will expand its oil production even more sharply", said analysts at German bank Commerzbank.

Some commodity markets were also absorbing news that President Donald Trump said he would withdraw the United States from the landmark 2015 global agreement to fight climate change, a move that fulfilled a major campaign pledge but drew condemnation from US allies and business leaders.

"Less Opec oil on the market enhances the opportunity for American energy to fill needs around the world, and will help us achieve energy dominance", Ryan Sitton from the Texas Railroad Commission, told Reuters.OPEC has for weeks been laying the groundwork to extend production cuts.The price of Brent crude dropped by over 4% to $51.32 a barrel after an announcement that oil-producing nations have agreed to continue production cuts.Ahead of the meeting, the organization announced that Equatorial Guinea had joined, expanding OPEC membership to 14.

It has been estimated that even if the number of rigs are not increased any more, the level of USA crude output would rise by approximately 785,000 barrels per day in the next couple of months.

All this points to downward pressure on prices, even though the Organization of the Petroleum Exporting Countries and Russian Federation recently renewed and extended their commitment to cut production by 1.8 million barrels a day until March.




While weaker oil price broke another myth or fundamental understanding that a nine-month agreement between the OPEC and N-OPEC countries would immediately boost oil price, it has broken many such myths over the past years and understanding them or at least recognizing them is of utmost importance if one looks to forecast the future price.

Sechin, a close ally of President Vladimir Putin, expects shale oil output to increase by about 1.5 million barrels a day in 2018, close to the entire cut targeted by OPEC and its allies.

Oil prices are down around 10 percent since the extension, and OPEC officials have since suggested they may deepen the cuts.

There were underlying concerns surrounding increased supplies from Nigeria and Libya given with no immediate move by OPEC to bring these two producers into the production agreement and cap output.

Faced with lingering glut woes, the oil cartel discussed last week reducing output by a further 1 to 1.5 percent, and could revisit the proposal should inventories remain high, according to sources.

Still, oil markets received some support from official US data that showed the country's crude inventories fell sharply last week as refining and exports surged to record highs. Last week, crude came under pressure despite a sizeable decline of 6.43 million barrels reported in United States crude stocks for the week ended May 26, in addition to a draw of 2.86 million barrels in gasoline inventories.

Dean Popplewell has almost two decades of experience trading currencies and fixed income instruments. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. You could lose all of your deposited funds.

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