Rising Saudi Oil Production Drives Crude Oil Prices to 4-Month Lows

Prices consolidated in Asian trading before edging higher ahead of the U.S. open on Wednesday after the latest International Energy Agency (IEA) report.

Futures fell 0.6 per cent in NY after losing 9.2 per cent the previous six sessions. US inventories fell by 531,000 bbl last week, the industry-funded American Petroleum Institute was said to report.

That data set, referred to as “secondary sources”, shows the 10 OPEC nations required to reduce output were as a whole fully implementing the agreement.

Speaking at the CERAWeek oil industry conference in Houston last week, Saudi Arabia’s Al-Falih said the country hasn’t decided yet whether OPEC should prolong the curbs once they expire in June. “The upward adjustments were due to more optimistic expectations for oil demand in OECD Europe, as well as Asia Pacific”, the OPEC said.

Global oil supplies rose by 260,000 barrels a day in February to 96.52 million b/d, as both OPEC and non-OPEC producers pumped more crude, the International Energy Agency said on Wednesday. At first sight, that goes against the grain of the agreement that Saudi brokered with fellow OPEC members and other non-OPEC producers such as Russian Federation and Mexico in November. US crude inventories rose by 8.2 million barrels to 528.4 million barrels. Total volume traded was about 48 percent below the 100-day average. Prices fell $0.68 to $47.72 Tuesday, the lowest close since November 29. It closed the previous session down 1.6 percent at $51.37. Prices lost 0.8% to $50.92 on Tuesday. The global benchmark traded at a premium of US$2.47 to May WTI.

Opec’s monthly report said oil stocks in industrialised nations rose in January to 278-million barrels above the five-year average, with United States shale and other non-Opec supply gaining.

Refinery runs had dropped from 17.0m b/d at the beginning of 2017 to 15.5m b/d, the IEA said.

The Energy Information Administration (EIA) expects US monthly average regular gasoline retail prices to increase from $2.30 per gallon in February 2017 to $2.51 per gallon in July before falling to $2.24 per gallon by December.

Suggesting the rise in production is likely the result of a rebound in internal demand, and noting that 10.01 million bpd is still within the limit of the cutback agreement, John Kilduff, founding partner of Again Capital, stated, “If the Saudis are saying it, we take them at their word”.