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Oil Glut Fears As OPEC and US Production Rises

By Patrick Higgins  |  07/07/2017 13:55
 
 
Global oil prices dipped by more than 1% today as news of output increases from both the US and OPEC were reported.
 
US futures have fallen below 45$ per barrel and Brent futures are trading at 59 cents lower (-1.2%) at $47.52.  West Texas Intermediate futures also saw drops of $1.06 (-2.4%) to $44.46.
 
Oil prices have oscillated recently as both crude and gasoline inventories have seen declines in the US, an indicator of high domestic demand.  Crude inventories dropped by 6.3 million to 502.9 million barrels in the last week of June, and gasoline inventories fell by 3.7 million to 237.3 million bpd, according to data from the U.S. Energy Information Administration.  This news has led to a slight increase in oil prices.  However, it was also overshadowed by reports released indicating continued increases in US production levels.  Regardless of inventory declines, US output levels have increased by a 1% average rise in weekly production and over 10% since mid-2016, to 9.34 million barrels daily.
 
Similarly, US increases in production coincide with reports indicating that OPEC production has increased for the second month in a row.  OPEC saw export figures of 25.92 bpd in the month of June, 450,000 bpd more since May and 1.9 million bpd since 2016, despite the renewed OPEC pledge to cut down production between January of this year and March 2018.
 
According to analysis from Morgan Stanley regarding price variation and future levels of production, WTI price is expected to remain sub-$50 until 2018.  US production is unlikely to veer off the precipice unless WTI price per barrel falls to $40 or lower.

If OPEC is unable to stabilise production within the bloc, the stagnation of oil prices will force members to make more drastic cuts, at the expense of market share losses.  Countries whose GDP relies heavily on oil exports, such as Venezuela, find themselves in the predicament of lost revenue due to oil price sluggishness, yet will lose more revenue if production is cut further. 

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