Crude prices fall on oversupply pressures
Oil prices dropped to an almost six-month low on Thursday May 5th closing at below $50 barrel, the lowest since November 29 last year. The fall has entirely wiped out a recovery driven by OPEC and other oil other producing countries. They moved at the end of last year to cut production output by 1.8 million barrels per day for the first six months of 2017.
OPEC Meeting Late May
OPEC delegates have talked down the chances of deepening cuts in oil production. They will meet on May 25, and although the current level of output cuts will likely be extended, indications are they will not be increased.
In a written statement, Russia’s Energy Minister Alexander Novak was the latest to show support for the extension of the six-month oil production agreement. The current agreement will expire unless extended on May 25. The burden of extended supply cuts would fall most heavily on Saudi Arabia, who last week reinstated pay and benefits for government workers that were cut last year due to weak oil revenues.
Speaking to Reuters Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics, said; ”While the cartel is expected to extend a self-imposed production cap by another six months, it will be a challenge to convince several non-OPEC members to follow suit… persistent growth in US oil production will also make extensions of the OPEC cap beyond 2017 unlikely.”
Brent Crude Volumes
Brent crude reached record trading volume with nearly 525,000 barrels traded according to Reuters data. WTI volume hit in excess of 898,000 contracts, the highest level in nearly two months. U.S. crude CLc1 ended trading 4.81 percent lower at $45.52 per barrel, after falling 5.29 percent to an intraday bottom of $45.29. Brent crude LCOc1 stabilised at $48.38, 4.75 percent lower, after dropping 5.17 percent.
Crude output has surged in the United States, with increasing rig counts for the past 11 months. Overall US oil production now reaches 9.3 million barrels per day.
The present glut in oil production has produced near record levels of overhang. To compound this oversupply, there are also signs of production levels increasing in markets that operate outside of the OPEC cartel. This is despite those areas agreeing to the late 2016 cuts.