Oil prices slide after IEA says producers 'opened the taps' in June

Janie Parker
July 14, 2017

According to Gary Ross, global head of oil at PIRA, while the U.S. will rank in the top ten oil exporters, it is unlikely it will either join OPEC or cut production in an effort to keep prices up, because it simply has no interest in doing so: it strengthens Donald Trump's political agenda of "energy dominance". However, lasting price movements could be limited over the next year because some US tight oil producers have used financial instruments to guarantee a price above $50/b for their expected production.

In the United States, crude oil inventories last week dropped the most in 10 months.

Saudi Arabia in turn plans to export less: it is planned to cut shipments in August by more than 600,000 bpd, taking exports for that month to their lowest level this year, to balance a seasonal rise in domestic use.

However, Nigeria and Libya expanded their production last month.

When OPEC's technical committee meets in St. Petersburg at the end of July to evaluate compliance with the production cut deal, the big question will be what to do about Libya and Nigeria.

Producers "opened the taps" as Opec crude output rose by 340,000 barrels per day (bpd) in June to 32.6m bpd, the International Energy Agency (IEA) said in its monthly report. Civil war and other violence caused Libyan production to declineby as much as 90% from its post-Qaddafi high of 1.5 million bpd in 2014.

Lower crude oil prices have a negative impact on oil producers such as Hess (HES), Bonanza Creek Energy (BCEI), Carrizo Oil & Gas (CRZO), and Comstock Resources (CRK).

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The minister said the oil production benchamark in the 2017 Budget was 2.2 million barrels per day (mbpd), whereas the country was producing about 1.7 mbpd.

"U.S. inventory numbers confirmed that a drawdown (of excess inventories) was in train", ANZ bank said.

By the IEA's estimate, it's not just three members undermining OPEC's efforts.

Producers are now set to meet in Saint Petersburg in Russian Federation on July 24 to review the output situation.

EIA forecasts total US crude oil production to average 9.3 million b/d in 2017, up 0.5 million b/d from 2016. Since the shale revolution through 2000s, USA producers reached a production level that took the country from a net importer to a net exporter. As of 2016, the US average daily export rate was just 520,000 bpd, although in May, the average daily was 1.02 million barrels.

However, market watchers should keep a careful eye on the numbers, because Libya and Nigeria may not actually be required to remove almost as much oil from the market as might be assumed. We do not expect any drastic changes next week: bunker prices may continue swinging with no firm trend.

Other reports by TheDailyFarc

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