Published: Fri, March 17, 2017
Economy | By Melissa Porter

USA oil recovers from three-month low

USA oil recovers from three-month low

"For those looking for a rebalancing of the oil market the message is that they should be patient, and hold their nerve", the IEA said in its monthly report.

But it also cautions that the output deal was always going to take time to work its way through the large and complex world oil system.

However, reports of the USA rig count, the U.S. crude oil inventory and the United States crude oil production, all point to a resurgent U.S. shale oil industry. OPEC didn't give a compliance figure in the report. In its October report, before the November agreement between OPEC and some of its competitors including Russia, Mexico and Kazakhstan to limit output, the IEA warned the market risked running into a third successive year of excess supply without any action from the producer group.

"The re-balancing of the oil market, driven by the recent successful OPEC, non-OPEC declaration of co-operation, is likely to further enhance the global oil industry, leading to even more global economic growth and hence higher oil demand growth in 2017", OPEC said. Crude slipped back below $50 a barrel last week for the first time since December as surging stockpiles and production in the USA suggest the cuts aren't working fast enough.

But the report revised up its estimate of oil supply from producers outside OPEC this year, as higher oil prices following the supply cut help spur a revival in US shale drilling.

It was Saudi Arabia's self-reported figure for February that pressured prices, with WTI diving to $47.72 in midday trading, and Brent touching the psychologically significant $50 barrier, at $50.78 a barrel. West Texas Intermediate for April delivery fell 0.37 percent to $48.31 a barrel on the New York Mercantile Exchange.

By noon on Tuesday, Brent was down by 67 cents at $50.68 a barrel, lowest since November 30, after earlier touching $50.55. At the same time, Fitch suggests that oil production from Azerbaijan is also on the up, with output set to increase by 4.7 percent this year. "This has put serious question marks over the OPEC's attempts to balance the oil market".

"Saudi Arabia directly communicated that the country's production returned above 10 [million barrels a day], which was actually more than 0.2 [million barrels a day] above OPEC's own estimates", Robbie Fraser, commodity analyst at Schneider Electric told (and summed up the market's fears). The drop from the US$55 range comes after the Riyadh government announced that it will extract more than 10 million barrels per year.

OPEC recently agreed to reduce output - for the first time in eight years - as part of efforts to clear a glut of oil and push up prices.

In February, "growing U.S. output and stubbornly high stockpiles kept price gains in check and contained prices within a tight range", it noted. A Bloomberg survey had forecast a 10th weekly expansion.

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