OPEC Compliance With Oil Cuts At Lowest In 6 Months

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OPEC’s compliance with production cuts fell in June to its lowest levels in six months as several members pumped much more oil than allowed by their supply deal, thus delaying market rebalancing, the International Energy Agency said on Thursday.

Global oil supply rose in June as compliance with an OPEC-led deal to freeze production showed signs that it was stalling.

OPEC’s compliance with cuts dropped to 78% last month from 95% in May as higher-than-allowed output from Algeria, Ecuador, Gabon, Iraq, the UAE and Venezuela balanced out strong compliance from Saudi Arabia, Kuwait, Qatar and Angola.

“Each month something seems to come along to raise doubts about the pace of the rebalancing process. This month, there are two problems: a strong recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement,” the Paris-based IEA said.

The supply of oil increased by 720,000 barrels a day in June across the world and by 340,000 barrels a day in OPEC countries. This was caused by higher production even in those countries subject to an OPEC-led deal to cut production. Saudi Arabia has increased its flows, the IEA said, as well as Libya and Nigeria who are not part of the production freeze.

“Higher output from members bound by the production pact knocked compliance to 78 percent in June, the lowest rate during the first six months of the agreement,” the IEA said in the report.

The agency also said that “compliance with agreed non-OPEC output curbs improved to 82 percent in June, overtaking compliance from OPEC for the first time since the cut took effect in January.”

The Organization of the Petroleum Exporting Countries and several non-OPEC producers, including Russia, have agreed to cut production by around 1.8 million barrels per day until March 2018 to ease a global crude glut spurred by booming U.S. output. But there are doubts mounting over the sustainability of the deal. Kazakhstan, for example, has said it wants a gradual exit from the output cap deal.

OPEC members Libya and Nigeria were exempted from the cuts due to years of unrest that have sapped their output. The two countries have managed to increase their combined production by more than 700,000 bpd in recent months, the IEA said.

“For fellow OPEC members, who agreed to reduce production by 1.2 million bpd, to see their cut effectively diluted by nearly two-thirds must be very frustrating, especially as their pact has, hitherto, been well observed by historical standards,” the IEA said.

The cuts have stabilized oil at around $45-50 per barrel, but prices have come under renewed pressure in recent weeks due to growing U.S. output and little evidence of global stocks falling from record highs above 3 billion barrels.

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Oil Falls To A Fresh 1-Month Low

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Oil prices fell down once again after bouncing back overnight in U.S. trading, falling to a fresh 1-month low following data showed a surprise build in U.S. crude stockpiles and the return of more Nigerian crude to an already oversupplied market.

The oil price has slipped below $50 a barrel despite a pledge by the world’s largest exporters to extend an existing output cut of 1.8 million barrels per day (bpd) into next year in an effort to cut down bulging global inventories.

The U.S. West Texas Intermediate crude July contract was at $45.45 a barrel by 8:2 AM EDT, down 24 cents, or 0.55%, after hitting its lowest since May 5 at $45.34.

Meanwhile, Brent Oil for August delivery on the ICE Futures Exchange in London plummeted 25 cents, or 0.54% to 47.81 a barrel. The global benchmark dropped to as low as $47.65 earlier in session, a level not seen since May 5.

Unexpected surge in U.S. crude stockpiles

Oil prices plunged to their lowest level in about a month on Wednesday after data showed that U.S. crude stockpiles unexpectedly climbed for the first time in nine weeks.

The U.S. Energy Information Administration said in its weekly report that crude oil inventories increased by 3.3 million barrels in the week that ended on June 2, disappointing expectations for a crude-stock decline of 3.4 million barrels.

Gasoline inventories also increased by 3.3 million barrels. For distillate inventories including diesel, the EIA reported a rise of 4.4 million barrels.

Supply Gloom Caps Gains

Addition to concern about supply outstripping demand, Royal Dutch Shell on Wednesday lifted force majeure on exports of Nigeria’s Forcados crude, bringing all the country’s oil grades fully online for the first time in almost one and a half year.

The market has also come under pressure from news of rising output from Libya, which together with Nigeria is exempted from the production cut made by the Organization of the Petroleum Exporting Countries and its 11 partners.

“I’ve been quite bullish for the second half of this year, based on supply and demand balances and I would still not give up on that idea, that rebalancing is going to start in the second half,” said Tamas Varga, an oil strategist.

“But if Nigerian and Libyan production is picking up as well as they are now, then slowly, I am probably going to have to start changing my mind.”

Glut Concerns Weigh

Meanwhile, investors kept weighing the effect of diplomatic tensions between Qatar and other Middle Eastern nations, including Saudi Arabia, on an OPEC-led push to tighten up the market.

With oil production of about 620,000 barrels per day, Qatar’s crude production ranks as one of the smallest among OPEC producers, but tension within the cartel could deteriorate an agreement to hold back production in order to bolster prices.

Last month, OPEC and some non-OPEC producers extended a deal to cut 1.8 million barrels per day in supply until March 2018.

Concerns that the current rebound in U.S. shale production could upset efforts by other major producers to bring balance back to global oil supply and demand remained in focus.

Elsewhere On Nymex

Gasoline futures for July dropped down 0.7% to $1.491 a gallon, while July heating oil subtracted 0.2% to $1.413 a gallon. Natural gas futures for July delivery also dropped down 0.4% to $3.008 per million British thermal units, as traders anticipate the weekly storage data due later in the global day.

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Commodity Currencies Inch Higher As Oil Slumps

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Currencies linked to commodity or oil-linked currencies such as the Canadian dollar, New Zealand dollar, Russian ruble and the Norwegian krone inched higher as oil prices slumped.

The Canadian dollar was last trading up 0.20% at C$1.3460 per U.S. dollar, down from a five-week high of C$1.3388 touched on Thursday. New Zealand dollar surged back 0.30% to $0.7045 after slipping 0.34% earlier. The Russian ruble and the Norwegian krone rose 0.51% and 0.17% to $0.01766 and $0.1193 respectively.

Oil Prices Slumped

Battered oil prices slumped on Friday after tumbling 5% in the previous session.

On Thursday in Vienna, the Organization of the Petroleum Exporting Countries (OPEC) and some non-OPEC producers agreed to extend a deal to cut around 1.8 million barrels per day (bpd) until the end of the first quarter of 2018, disappointing investors who are betting on longer or larger edges.

Brent crude futures were down from their last close 1.01% to $50.94 per barrel at 8:06 AM EDT as they were still set to end Friday with a weekly loss of more than 3 percent. Meanwhile, U.S. West Texas Intermediate (WTI) crude futures were below $50, at $48.43, slipped 47 cents and 0.96% from their last close.

Matt Simpson, a senior market analyst, wrote in a Friday note, “Oil was practically begging to be knocked off its perch after rallying into the OPEC meeting with wide expectations (for) extended cuts. As the extensions were estimated to be around nine to twelve months, OPEC needed to far exceed this time horizon for oil to sustain its rally.”

Moreover, the dollar index lost 0.12% to 97.08, some risk-off sentiment driving the yen higher, who rose to a 3-day high against the greenback 0.76% to 111.03 yen, while the euro also edged higher 0.13% to $1.1225.

Meanwhile, Sterling fell over half a percent to as low as $1.2870, a two-week low on Friday, pulling further away from a May 18 peak of $1.3048, its strongest level since September last year, after a poll showed a narrowing lead for British Prime Minister Theresa May over her opposition prior to elections next month.

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Oil Prices Rise after Saudi & Russia’s OPEC Agreement

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Oil prices surges on Monday following Saudi Arabian and Russian energy ministers’ decision of extending the Organization of the Petroleum Exporting Countries’ (OPEC) output deal for an additional nine months.

Global benchmark Brent crude futures lifted 3.1 percent to $52 a barrel the highest level in two weeks while US marker crude West Texas Intermediate (WTI) edged up 3.2 percent to $49.

The gains will present some relief subsequent to what has been a dull few weeks for a lot of commodities in the course of US President Donald Trump’s effort to get his infrastructure plan started and tightening credit in China.

Energy ministers Khalid Al-Falih (Saudi) and Alexander Novak (Russia) met on Monday in Beijing and talked about the oil output policy.

Russia is the world’s largest oil manufacturer while Saudi Arabia is the major exporter.

Both ministers said in a shared statement that they have agreed that supply cuts needs to carry on to 2018, an act towards keeping the OPEC-led deal so as to hold up prices in place longer than the initially decided optional six-month extension.

The Saudi Arabian minister also said that there has been a noticeable drop to the inventories but they are not where they want to be in meeting the five-year average.

For this reason, they have come to the decision that the deal has to be extended.

The ministers suggested that next round of cuts should be on the same conditions like the previous agreement where OPEC, Russia and other producers settled to cut production by 1.8 million barrels per day in the first half of 2017 with a possible six-month extension.

Khalid-Al-Falih told the reports that OPEC countries and non-OPEC countries taking part in the agreement on cutting oil outputs has accomplished a complete consent on extending the contract.

He added that he thinks that the verdicts will be positive in Vienna and that they bring together a full agreement of the group.

Based on the joint statement of Saudi Arabia and Russia, they have agreed to discuss with the countries-parties in the deal and other producers ahead of May 24 so as to achieve a complete consent on the nine- month extension of the declaration on cooperation.

Both countries are planning to suggest the nine-month extension at the meeting which will take place on May 25.

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Oil Prices Recover after Earlier Decline

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Oil prices has rebounded on Friday after falling earlier which  caused distress in markets resulting in traders and investors to seek refuge in safe-haven bonds, triggering the yen and gold to haul up a record-breaking high for the world stock market.

As of 14:07 GMT, gold futures for the June contract is currently 0.02 percent down to $1,228 while spot exchange rate for Japanese yen fell 0.01 percent against the US dollar to $0.008883.

Traders had to seek out for shelter overnight as US crude oil WTI futures for June delivery fell 0.3 percent to $45.38 a barrel as of 13:28 GMT, off the six-month low of $43.77 target but it is still under constant worry  in the course of continuous global supply glut concerns.

Crude has recovered from its previous decline gaining 0.5 percent to $45 a barrel.

Brent oil futures for the July contract was up 0.8 percent to $48 a barrel after hitting a six-month low of $46.65 the previous session.

Hong Kong’s PetroChina and CNNOOC also closed their session with a 2 percent loss to HK$5.26 and 0.7 percent low to HK$8.85 respectively.

Oil was not the only commodity to encounter declines this week. Chinese iron ore edged down almost 7 percent in Shanghai overnight after falling 8 percent on Thursday.

Mining giant Rio Tinto (RIO) closed 2 percent down to AU$57.150 hitting a six-month low, while Glencore PLC (GLEN) is up almost 2 percent to £282.70 and copper miner Antofagasta rose 1 percent to £760 on Friday.

Some of the world’s most sensitive commodity currencies went downside with the Australian dollar losing 0.1 percent to $0.7399 the same goes for the Russian ruble also 0.1 percent low to $0.01711. The Canadian dollar broke the trend gaining 0.1 percent to $0.7284.

Crude prices has been under pressure after the US Energy Information Administration said in its weekly report that crude oil inventories fell by 930,000 barrels in the week ended April 28 which was a much smaller take than expected.

Back in November last year, the Organization of the Petroleum Exporting Countries or OPEC together with other manufacturers including Russia came to an agreement to cut production by about 1.8 million barrels per day between January and June yet the output cut has had little effect on inventory levels.

A final decision on whether or not to extend the agreement beyond June will be discussed by the oil union on May 25.

Other commodities were also up on Friday with silver futures increasing 0.1 percent to $16.334 and copper steady at 0.02 percent to $2.511.

Meanwhile, the Indonesian government is asking $2 billion in reimbursement from Thailand’s state oil company and its Australian division due to an oil spill in the Timor Sea nearly eight years ago.

The lawsuit was said to be registered last Wednesday at the Central Jakarta District Court in an attempt to seek justice for the oil spill at the Mondara oil field that started on August 21, 2009.

The demand for compensation includes $1.7 billion for environmental damage and $330 million for restoration work.

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OPEC’s Output Curb and its Global Impact

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Last November 2016, the Organization of Petroleum Exporting Countries (OPEC) together with 14 member countries came to an agreement to reduce oil production in an attempt to raise prices. Oil prices have been down by more than half since mid-2014 due to global oversupply and booming US shale production.

Five months later, from 1.3 million barrels per day (bpd) now cut down to almost 1.8 million bpd it is still debatable whether OPEC’s solution to manage the worldwide glut that is happening will help.To some, it became an advantage. For others, it became a disadvantage.

Top traders saw this as an opportunity and are confident that the OPEC cuts will work and they bet that by selling their stakes in storage tank businesses that benefited from oversupply. They also expect OPEC to extend output cuts into the second half of 2017 which can help pull down global inventories.

Since mid-2014, the situation has been in a contago, in which, when inventories are abundant the oil price for future deliveries tend to be higher than prompt delivery. Sometimes the prompt price reaches more than $1 less than a barrel for delivery a month later.

Meanwhile, with OPEC’S effort to control oil output Asian countries such as China has been reaching out to other suppliers for crude including Africa and US. Current

The cut of production gave way for other nations to acquire a better footing in the developing Asian market such as those operating in West Africa.

Angola and Nigeria are all set to send China 1.48 million bpd of crude oil in April. The West African crude is expected to reach 2.4 million bpd this month for its Asian imports.

Sales of Nigerian grades also went up this month as trust in the reliability of the country’s flows has improved.

Moreover, according to the International Energy Agency (IEA), China may also become the world’s top oil buyer by the end of the year with 32 cargoes of mainly Angolan grades, which will help transport large amount of Angolan crude to Asia to about 1.31 million bpd this month.

Unfortunately, Iran and Tehran have both been struggling to keep up as Iran has sold all of its stock from its floating storage while Tehran is under pressure to keep exports from increasing as it struggles with the production limit.

Iran has sold its last supply of oil in the past two weeks. The oil was said to be condensate, which was a light grade of crude. With all of its stock sold, Iran lost its fundamental resource for maintaining exports.

Back in June 2016, Iran’s output went from 2.9 million bpd to 3.6 million bpd. The country fought hard with its OPEC colleagues to be excluded from the production cuts that came into effect on January 1st which will last until June. OPEC gave Iran a small increase to make up for years of separation, but produced less in the past three months.

Last month, Tehran was ready to manufacture 3.8 million bpd if OPEC agreed to extend the production curb in the second half of 2016.

Meanwhile, oil prices went up on Thursday. This is its fourth gain after recovering losses caused by high US crude inventories.

Brent oil futures edged up on Thursday by 19 cents from $54.56 to $54.75 bpd as of 13:04 GMT, while crude oil WTI futures increase by 22 cents from $51.28 to $51.50 a barrel.

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Oil Prices Decline as U.S. Rig Count Stoke Oversupply Concerns

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On Monday, oil futures plunged as a higher U.S. rig count showed increasing  shale production and fueled worries regarding global oversupply, while a stronger greenback also pressured prices.

International benchmark Brent futures glided 15 cents, or 0.3%, to $53.38 a barrel by 0440 GMT. The March deal  closed the prior session down 13 cents at $52.83 a barrel.

U.S. West Texas Intermediate crude futures decline  8 cents, or 0.2%, to $50.52 a barrel after settling 25 cents higher in the prior session.

Both agreements have posted their worst quarterly loss since late 2015 in the March quarter. U.S. futures decline approximately 6% from the prior quarter, while Brent lost 7% as increasing  inventory levels outpaced production cuts by OPEC and non-OPEC members.

Crude prices staged a three-day rally the previous week during  expectations members of the Organization of the Petroleum Exporting Countries (OPEC) and non-members like Russia would extend output cuts beyond June.

However,  prices decline on Friday after energy services firm Baker Hughes said the U.S. rig count surge by 10 to 662 last week, making the 1st quarter the strongest for oil rig additions since mid-2011.

“We could be getting close to the end of the rally. Today’s pause may be significant in terms of market direction – we’ll see what happens in Europe and the U.S. later today,” said Ric Spooner, chief market analyst at Sydney’s CMC Markets.

“We’ve had a pretty significant rally in the past week, driven by Libya’s production not doing as well due to disruptions, good utilization rates by U.S. refiners and talk of OPEC and non-OPEC members extending production cuts for another six months,” Spooner said.

“Now the market may have priced all those factors in and investors are waiting for additional indicators to give oil prices direction.”

That could come later on Monday when Europe and the U.S. release purchasing managers’ index (PMI) data.

PMI data from China on Saturday indicated the country’s factories expanded for a ninth straight month in March, but at a softer pace as new export orders slowed.

“The China PMI figures were pretty positive – they provide background support for oil prices,” Spooner said.

On Monday, the U.S. dollar index increased against a basket of currencies. A stronger greenback makes greenback-denominated commodities, including oil more expensive for holders of other currencies.

Iraq plans to surge its oil production capacity to 5 million barrels per day before the end of the year,however,  Baghdad has assured Organization of the Petroleum Exporting Countries (OPEC) it will fully conform with the pact to reduce oil supply, Oil Minister Jabar al-Luaibi and OPEC Secretary General Mohammed Barkindo stated on Sunday.

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