Prices of oil slipped to record three month lows on March 22 after data revealed that US inventories of crude were going up much faster than previously anticipated. It is expected that pressure will be put on Organization of the Petroleum Exporting Countries (OPEC) so that the output will be reduced after June. This happened due to a deal being signed between OPEC producers and a few non-OPEC producers. This deal expressly stated that output should be reduced by about 1.8 million barrels every day during the first six months of 2017. It had minimal impact on the global oil glut.
According to informed sources, OPEC will agree to output reduction being extended in the latter half of 2017. It had maintained what it had promised on the reductions until now. However, the non-OPEC countries must fall in line with the commitments made. Ole Hansen of Saxo Bank said that OPEC has exhausted a majority of its verbal weapons that will lead to support markets. The only viable tool in their arsenal is full compliance. They are struggling with this one. Hansen heads commodity strategy at the bank.
A dip of 75 cents at about $50.21 for every Benchmark Brent crude barrel happened during the early hours of trade. This happened after the benchmark scraped at $50.05. This is the lowest from the time OPEC made an announcement on November 30 for cuts. OPEC reached a deal with non-OPEC only in December.
Figuring the future
US light crude dipped 68 cents to reach $47.56 per barrel. This is also moving towards three month record lows. Inventories in the United States went up top 533.6 million during the third week of March, an increase of 4.5 million barrels. The numbers outpaced the analyst forecasts. The latter was 2.8 million.
Investors are now keen to see whether the March 22 figures are confirmed by Energy Information Administration confirms such a rise. The EIA is a part of US Department of Energy. In a note, US bank Jefferies said that market intervention by OPEC has not resulted in any noticeable inventory draw-downs. The financial markets have also lost their patience. The bank also said, however, that the market was not supplied to its full potential. In such a scenario, if OPEC extended the cuts, prices may recover and go above $60 in fourth quarter. Producers of US shale oil have added rigs and ramped up American production of oil to 9.1 million bpd from the previous 8.5 million bpd.