Oil prices fall on expected climb in USA production

Owen Stevens
April 22, 2017

USA shale production in May was likely to post the biggest monthly gain in more than two years, government data showed on Monday, as producers stepped up the pace of drilling, with oil prices holding above $50 a barrel.

A preliminary Reuters poll showed analysts expected data to show USA crude stocks fell in the week to April 14, building on a surprise decline the previous week.Analysts said they expected the data to show crude inventories fell around 1.5 million barrels last week.

"Total inventories of crude and products moved to a deficit versus year-ago levels for the first time since August 2014, despite a build in gasoline stocks following refinery runs rising by 241,000 [barrels per day]", said Troy Vincent, oil analyst at ClipperData.

The benchmark USA crude contract, West Texas Intermediate futures, settled down 17 cents for a fourth straight day of losses, to $50.27 a barrel.

Last November, OPEC countries, and other 11 participating non-OPEC countries agreed to slash production by 1.8 million barrels per day by the first half of 2016.

"At 532.3 million barrels, United States crude oil inventories are near the upper limit of the average range for this time of year".

"With questions hanging over USA gasoline demand, any further product builds will act as a brake on the oil price recovery", he said. June WTI crude oil futures fell 3.7% and settled at $50.85 per barrel on April 19, 2017.

Oil prices are on pace for their biggest daily percentage decline since early March, and US crude oil production is expected to rise in both 2017 and 2018.

$60 barrel prices would allow for additional investment in the global energy sector, without allowing the United States' shale producers too much additional financial leverage to undo the effects of the output cuts. John Saucer, vice president of research and analytics at Mobius Risk Group in Houston, said the market was not jittery, noting low volatility and weak oil prices, which he said doesn't "really signal a market that's too concerned about geopolitical hotspots".

Opec's compliance with the cuts improved to 104 per cent in March from 90 per cent in February, while the rate for non-Opec producers in the deal increased to 64 per cent from 38 per cent over the same two months, the International Energy Agency said in an April 13 report.

OPEC is due to meet on May 25 to weigh an extension of output cuts beyond June to alleviate a glut that has depressed prices for almost three years.

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