Published: Thu, February 16, 2017
Markets | By Lucia Cruz

Why OPEC's oil production cut is a 'gift to United States producers'

A 3.5 million-barrel gain was forecast by analysts surveyed by Bloomberg before the report. It's not so much that it makes the US inventories unwieldy.

Crude oil prices moved higher on Tuesday ahead of this evenings API inventory report.

Sharp-suited men in NY, spivs in the City, keyboard warriors in the Australian Outback, the whole global conspiracy of oil market speculators has been rebranded. After all, the global oil production cost curve is pretty steep, demand is rather inelastic in the medium term, and the majority of USA shale plays are not viable below $50/bbl.

Energy analysts were surprised by the amount of exports, which have been running about 500,000 barrels a day, and averaged 685,000 barrels a day over four weeks.

"Even with prices in the low $50s we're seeing a significant turn in production and rig counts", he said.

Stockpiles climbed to 508.6 million barrels in the week ended February 3, the highest seasonal level in more than three decades, and crude production is at the highest since April 2016, according to weekly data compiled by the Energy Information Administration since 1982.

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The Organization of the Petroleum Exporting Countries and other exporters including Russian Federation have agreed to cut output by nearly 1.8 million barrels per day (bpd) during the first half of 2017 in a bid to rein in a global fuel supply overhang.

U.S. shale oil production is expected to rise in March by 80,000 barrels per day to 4.87 million bpd, according to the data from the U.S. Energy Information Administration. He also pointed to a report on Reuters that quoted sources saying as much as 7 million barrels were lined up and heading to Asia, with 2 million chartered to China in December by PetroChina and Unipec. "We're going to face competition". The stockpile increased 9.5 million barrels, bringing the total stockpile to 518.1 million barrels. Tension between Iran and Saudi Arabia made a deal hard to negotiate, but an agreement to cut oil production - for the first time in eight years - was eventually reached.

Factoring in increased shale oil production, USA daily crude oil output will climb 100,000 barrels on the year to 8.98 million barrels in 2017 and rise to 9.53 million barrels in 2018, according to the Energy Information Administration.

The concerted efforts by both OPEC and non-OPEC producers to support the oil prices are already having a positive impact on the market, said OPEC Secretary General Mohammed Sanusi Barkindo. So, if this trend does not continue in near future and if non-OPEC members continue to produce above their agreed production levels, then oil prices will definitely come under more pressure.

The International Energy Agency sees combined daily production growing 750,000 barrels on the year in 2017 for the U.S., Brazil and Canada - all nonparticipants to the agreement.

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