Oil pull back ahead of U.S. inventory data
Global oil prices surrendered earlier gains in Asia on Wednesday, on deepening oversupply concerns after the U.S. energy department again raised oil production estimates.
The Energy Information Administration on Tuesday said it expects American shale producers to crank out 9.3 million barrels a day in 2017, a slight increase from its projections in May. It expects 2018 daily output to hit 10 million barrels, exceeding the previous record of 9.6 million barrels a day in 1970.
Strong production out of the U.S. has been the main challenge facing the Organization of the Petroleum Exporting Countries, which together with a handful of non-cartel producers such as Russia, have pledged to reduce their output by 1.8 million barrels until March.
More than five months into the cut deal, much of the benefits from the cuts have flowed to the U.S., where producers take advantage of the higher prices to expand their drilling operations. U.S. production has stayed above the 9.3 million barrels a day level for four weeks.
Capital Economics analysts say the acceleration in U.S. oil digging activities will soon peter out unless oil prices rise significantly.
U.S. crude stocks, however, likely fell for the ninth consecutive week in the week ended June 2. The Wall Street Journal survey tips for a drawdown of 3.5 million barrels, while estimates by industry group American Petroleum Institute show a 4.6 million barrel decrease. Official readings by EIA are due out later Wednesday.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in July (CLN7) traded at $48.13 a barrel, down 6 cents in the Globex electronic session. August Brent crude (UK:LCOQ7) on London’s ICE Futures exchange dipped 4 cents to $50.09 a barrel.
OPEC’s own rising production also weighed on prices. Despite the reported high level of compliance to the cut deal, the cartel’s output likely rose by 270,000 barrels a day in May to 32.12 million, driven by the faster-than-expected rebound in Nigeria and Libya, two OPEC nations exempt from the pact, said S&P Global Platts.
“If global stocks do not start to show demonstrative signs of steady draws, OPEC may have to be more creative with its strategy,” said the firm.
OPEC’s next monthly report will be published on June 13.
Nymex reformulated gasoline blendstock for July (RBN7) fell 1.3% to $1.5348 a gallon , while July diesel traded at $1.4631, 0.2% lower. ICE gasoil for June was at $432.50 a metric ton, 1% higher from previous settlement.