The promising start to OPEC's output reductions drew a muted reaction from the crude oil market amid uncertainty over future progress and ramped-up American shale oil production. Brent, the global benchmark, was down 6 cents, or 0.11%, at $55.91 a barrel on ICE Futures Europe. "We called it the Nigerian barrel previous year, '" she said, adding oversupply of light sweet crude would start to weigh on oil prices.
Meanwhile, with much of the market expecting higher United States production, the EIA said tight oil production stateside will increase to more than 6 million bpd in the coming decade, making up most of total American oil production. The increase from 120,000 barrels per day (BPD) to 240,000 BPD is due to a pick-up in drilling activities and investment in the U.S., Kallanish Energy learns.
Mr. Leonid Bershidsky, a BloombergView Columnist, very rightly observes that "The developed world's commercial oil stocks dropped in January, but they still stand at around 299 million barrels above the five-year average".
Speculators cut net long positions on Brent last week by 10,000 contracts, weekly ICE data showed, highlighting investor concerns about rising USA production. China, Mexico, Russia, Colombia, Oman, Azerbaijan, Norway and Indonesia are expected to show the strongest declines. "But lessons from the past have made the market deeply suspicious". Later, non-OPEC countries agreed to cut the output by 558,000 barrels per day during the meeting held December 10, 2016.
Analysts were concerned the production cuts won't be enough to prop up crude prices as production continues churning in the US.
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The International Energy Agency (IEA) previously estimated the compliance level to be 90%.
- OPEC's compliance with the November 30 production cut agreement was 92% since the deal became effective in January.
The VanEck Vectors Oil Services ETF (NYSEMKT: OIH) traded down about 1% to $33.40, in a 52-week range of $22.73 to $36.35.
US production not only threatens to undermine efforts by OPEC and other producers to ease the global glut of crude, but concerns over the threat of losing market share to North American producers could also undermine future cooperation within the cartel.