Oil slips on worries about Mideast rift, USA production growth

"Investors continue to doubt the ability of OPEC to rebalance the oil market, with crude oil prices remaining under pressure amid further signs of rising United States oil production", ANZ bank said on Monday.

Throughout a almost three-year downturn, American oil companies have driven down the cost of advanced drilling methods, allowing them to pump profitably, even with U.S. West Texas Intermediate crude (New York Mercantile Exchange: @CL.1) trading between about $45 and $55 a barrel - roughly half of peak 2014 prices.

Crude output in the United States, meanwhile, has jumped more than 10 per cent since mid-2016 to 9.34 million bpd, close to levels of top producers Saudi Arabia and Russian Federation.

According to the Financial Times, the sharp fall in oil prices was due to the Energy Information Administration (EIA) reporting United States inventories had increased 3.3 million barrels to 513.2 million barrels, countering estimates of a decline of similar size in its weekly report.

Yet, one factor that should be noted: in the report, there was a drop in USA crude oil production which fell for the first time in eight months by 20,000 barrels, which may be a sign that we are getting close to a USA production plateau. Official data by the EIA will be published later on Wednesday. Forecasters had predicted a drop of 3.5 million barrels.

Since OPEC announced the extension of production cuts, the market has continued to react bearishly with respect to the oil price.

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Brent for August settlement was $1.69 lower at $48.43 a barrel on the London-based ICE Futures Europe exchange.

Despite this, there are doubts that an effort led by the Organization of the Petroleum Exporting Countries (OPEC) to curb production by nearly 1.8 million bpd was seriously denting actual exports.

"Production growth outside of the areas that have agreed to cut, is still the dominant theme in the market", said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut.

As concerns about supply persist, US drillers have added rigs for 20 straight weeks, the longest streak in at least three decades, undercutting efforts by the OPEC to cut production and eliminate a global glut.

Oil traders are sensitive to Middle East tensions because they worry about supply disruptions, although Qatar itself is a smaller producer than its neighbors. USA crude oil (UCO) (FXN) (SCO) prices fell in post-settlement trade on June 6, 2017, despite the fall in inventories. The market expectation for crude stocks was a decline of 3.5 million barrels.


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