Here's why oil prices could drop to $30 a barrel again: Fesharaki

Posted June 15, 2017

Saudi Arabia, the world´s top oil exporter, is leading an effort by the Organization of the Petroleum Exporting Countries (OPEC) to cut production by nearly 1.8 million barrels per day (bpd) until the end of the first quarter of 2018 in order to prop up prices.

Total OPEC production for May was 32.1 million barrels per day, an increase of about 1 percent, or 336,000 barrels per day, from the previous month.

Data from the American Petroleum Institute showed on Tuesday that us crude stocks rose by 2.8 million barrels in the week to June 9 to 511.4 million, compared with expectations for a decrease of 2.7 million barrels.

Distillate inventories fell this week by 1.451 million barrels, while inventories at the Cushing, Oklahoma, site fell by 833,000 barrels after last week's dip of 1.56 million barrels. The report said the market was rebalancing at a "slower pace".

USA shale production will surge to a record in July, the EIA projects. In addition, pent-up demand for hedging will pressure any moves higher in the oil market, he said. The rise has been driven by the oil price climbing back up after an initial deal by Opec and allies past year to cut production by 1.8m barrels of oil a day from January 2017.

USA crude fell 3.57 percent to $44.80 per barrel and Brent was last at $47.01, down 3.51 percent on the day. Thus OPEC's desire for higher prices over the medium term have been continually thwarted.

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The U.S. Energy Information Administration reported gains last week in oil storage inventories, sparking concerns about market balance. However, that optimism seems to be fading amid higher production from the United States and reports of impatience within the OPEC with lower oil price.

Rising output from the United States has been one of the main factors behind the stubbornly high stock levels and the IEA estimates U.S. production will continue to grow aggressively into next year.

The boost was prompted by the restoration of oil output in Libya and Nigeria, which are exempt from the OPEC agreement to cap production to stabilize prices.

US crude production has been steadily growing and last week rose to 9.33 million bpd, up 12,000 from the previous week, the EIA said.

OPEC is curbing output by about 1.2 million bpd, while Russian Federation and other non-OPEC producers are cutting 600,000 bpd under an accord that was extended until March 2018. Yet no sooner had Riyadh made that decision that Iraq, OPEC's second-largest producer, announced it would step up exports to the U.S.to make up for the drop in Saudi supply.