US oil production seen thwarting OPEC effort to boost prices

Javier Howell
June 15, 2017

And in the meantime, OPEC's fragile cohesion is sorely tested by much-diminished revenues.

While output is no doubt important, for the immediate market impact it's probably better to focus on what the group is actually exporting.

DeAngelis added that the anticipated 1 million bpd demand for the rest of this year "is not enough [to balance the market] given the boost we're seeing here".

This figure is only shipments by tanker and is filtered to show vessels that have already discharged, are discharging or are en route to their destination.

OPEC and 11 allies agreed on May 25 to prolong their deal to April 1, after judging that curbs made in the first half of this year wouldn't be enough to reduce oil inventories in developed nations to their five-year average.

Sentiment, however, turned negative later during the session, following OPEC's monthly report showing that output from the group rose by 336,000 barrels a day in May to 32.14 million barrels per day (bdp).

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. Demand for OPEC crude this year is projected to increase by 300,000 bpd to average 32m bpd. We consider that an overly sanguine forecast, even taking into account the "improving momentum in most major economies" in the first quarter of 2017 cited by OPEC.

This is partly because Saudi Arabia usually burns more crude in power stations at home in the summer months to meet extra demand for power as people rely on air conditioners to deal with temperatures that can reach 50 degrees Celsius. However, that optimism seems to be fading amid higher production from the United States and reports of impatience within the OPEC with lower oil price.

That means an entrenched market glut that has kept a firm lid on oil prices is likely to persist, despite disciplined efforts by most OPEC producers to rein in their own output. Its cuts aren't working, its members aren't complying, and American producers are enjoying the opportunity to expand their market share at the cartel's expense.

Meanwhile, US drilling activity has continued apace, driving up US output by more than 10 per cent since mid-2016 to above 9.3 million bpd.

In contrast, China's imports from fellow OPEC member Angola jumped 13.3 percent and those from allied producer Russian Federation gained 8.1 percent.

Of the 1.43 million barrels a day of growth forecast for next year, 35 percent of it consists of liquefied petroleum gas, or LPG, which includes stuff like ethane and that propane you use to fire up your grill. Taken together, these two nontraditional suppliers to China accounted for 3% of the country's imports in the first four months of the year.

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