Published: Thu, June 15, 2017
Economy | By Melissa Porter

Oil Market Rebalancing At 'Slower Pace

OPEC and 10 other countries led by Russian Federation agreed last week to extend for nine months, to March, a production cut of 1.8 million barrels a day initially agreed on in November. IEA said its provisional monthly data for May indicates that OECD stocks may be little changed.

"In 2018, we expect non-OPEC production to grow by 1.5million bpd which is slightly more than the expected increase inglobal demand".

The Saudis may well look at that figure and think that they should have supplied that crude to China, but they have not in the name of rebalancing the market. Prices initially nudged higher after the world's top exporter Saudi Arabia outlined cuts to customers in July that included a reduction of 300,000 barrels per day (bpd) to Asia.

The second-largest producer in the Organization of Petroleum Exporting Countries loaded 12 million barrels of crude for the the first 13 days of this month, the tracking shows.

It's not like the Saudis are enjoying significantly higher prices, with Brent crude ending on Tuesday at $48.72 a barrel, perilously close to the $46.38 close the day before the November 30 deal between OPEC and its allies.

Overall, Saudi exports are set to be lower than previous year, when the kingdom shipped about 7.4 million bpd on average from May to August. "But we'll see lower pump prices in the last 100 days of 2017 thanks [in part] to the post Labor Day demand slump".

"We think this effectively takes September off the table", said Ian Lyngen, head of USA rates strategy at BMO Capital Markets in NY, in reference to the impact of the data on the probability of a September Fed rate increase. With this, despite a pledge to cut output, the OPEC also reported a rise in its production.

The U.S. Energy Information Administration report on oil inventories is due this week on Wednesday at 10:30 a.m. EDT.

The upward movement on gasoline inventories for another week was also a huge disappointment, climbing 1.794 million barrels this week, compared to an expected draw of 1.15 million barrels.

Cash-strapped USA shale firms scaled back their hedging programs in the first quarter, leaving them more vulnerable to tumbling spot market prices just after OPEC reached a landmark deal to curb global supply.

"The high-price numbers prompted USA refiners to lower nominations", one industry source said.

Overnight, crude futures settle higher on Tuesday as investors looked ahead to fresh US crude inventory data expected to show draw in crude stockpiles, offsetting concerns about an uptick in output from OPEC members.

The cartel reduced its estimate of oil supply growth from producers outside the group this year to 840,000 bpd from 950,000 bpd, following the decision to extend the cut by nine months.

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