Published: Thu, June 15, 2017
Markets | By Lucia Cruz

IEA sees rising oil production, weaker demand into 2018

IEA sees rising oil production, weaker demand into 2018

Crude oil prices closed higher in futures market on Tuesday, ahead of a weekly US government data that are expected to reveal a decline in crude supplies.

USA crude fell 3.57 percent to $44.80 per barrel and Brent was last at $47.01, down 3.51 percent on the day.

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. It predicts that output will grow even faster next year, by 1.5 million barrels daily, "which is slightly more than the expected increase in global demand".

Oil is extending its slump below $50 a barrel amid speculation increasing US supplies will counter production curbs by the Organization of Petroleum Exporting Countries and allies including non-OPEC member Russian Federation. That led to a downturn in crude oil prices as many market watchers were anticipating deeper cuts.

However, rising USA production has stymied OPEC's efforts to rebalance markets.

United States stocks mostly fell while the American dollar cut its losses overnight after the Federal Reserve delivered a widely expected interest rate hike. Equally, shipments could now decrease making the monthly tally lower than the near 1 million barrels a day average over June's first 13 days. The move is meant to drain the market of excess supply. The API reported builds of around 2.8 million barrels in U.S. commercial crude stocks and around 1.8 million barrels in gasoline stocks.

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The increase came despite efforts by the Organization of the Petroleum Exporting Countries and a handful of external producers to drain stocks below five-year averages and reduce global output by 1.8 million barrels a month until March 2018.

Oil prices settled higher on Tuesday after OPEC detailed supply cuts around the world, but the cartel also said overall production rose in May, and crude stayed well below $50 a barrel despite the modest recovery. For parties to the agreement, Russia's production during the second half of the year should fall by about 130,000 bsteels per day.

"The outlook for oil hinges on the effectiveness of the OPEC cuts relative to the supply increases from US shale", said William O'Loughlin, analyst at Australia's Rivkin Securities.

"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.

BP analysts said that production outside the Middle East fell by 1.3 Mb/d, with the largest declines in the U.S. (-400,000 b/d), China (-310,000 b/d) and Nigeria (-280,000 b/d).

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