Economy

Full tanks and tankers: a stubborn oil glut despite OPEC cuts

Full tanks and tankers: a stubborn oil glut despite OPEC cuts

That source said a deeper cut in output was an option depending on estimated growth in supply from non-Opec producers, mainly United States shale oil firms, among other scenarios.

USA crude stockpiles fell 1.75 million to 520.8 million barrels last week, down from a record 535.5 million at the end of March, according to the Energy Information Administration.

West Texas Intermediate for June delivery rose 8 cents to $49.15/bbl at 10:58 a.m. on the New York Mercantile Exchange.

US crude inventories rose by 882,000 barrels in the week ending May 12 to 523 million barrels, according to the American Petroleum Institute (API), defying expectations of a drop. "If Opec extends production cutbacks and maintains its production at current levels, the stock overhang based on divergence from a five-year average would have disappeared by year-end", said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

On May 25, leaders from OPEC and other producing countries will meet in Vienna to decide on output policy. The initial agreement between OPEC and other producers was for cuts of 1.8 million barrels per day (bpd) to run through the first half of 2017.

"The fall in stockpiles undershot the expectation of a 2.36-million draw", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

"In the first quarter of 2017, we might not have seen a resounding return to deficits, but this report confirms our recent message that re-balancing is essentially here and, in the short-term at least, is accelerating", the IEA said.

Oil prices rose more than 3 percent after the announcement with a barrel of Brent Crude jumping to $52.52.

On Monday the EIA said that production from seven major US shale plays should jump by 122,000 BPD to 5.401 million in June from the prior month.

FXTM research analyst Lukman Otunuga said the Opec versus US Shale saga feels like a fierce battle of attrition with the victor taking the spoils. Data released on Thursday shows that even Saudi Arabia has increased sales in the market by 275,000 barrels a day. US producers are not party to any agreements capping production.

Virendra Chauhan, an analyst at Energy Aspects, said: "OPEC and Russian Federation recognize that in order to get the market back on their side they will need "shock and awe" tactics where they need to go above and beyond a simple extension of the deal".


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