Published: Thu, June 15, 2017
Finance | By Kristine Clayton

Oil prices fall on OPEC output increase, rising United States crude stocks

LPG forms part of oil demand, broadly defined, but it doesn't eat into crude oil stocks and is worth much less.

Crude futures had shed more than 40 cents in the first few hours of trading Wednesday in Asia, in response to a build in U.S. crude and gasoline inventories reported by the American Petroleum Institute for the week ended June 9. In short, whenever oil demand rises and prices go up, it will be met by increased supply from the US. On that basis, stocks would need to drain by more than a million barrels a day between now and then, roughly double the current deficit in global supply as reported by the IEA.

Gasoline inventories now sit at 242.4 million bbl, or 9%, above the five-year average of 223 million bbl, according to EIA data.

The TSX shed 4 points on Tuesday, with losses in financials, materials, and telecoms offsetting gains in info tech and energy. Analysts had expected a decrease of 2.7 million barrels. West Texas Intermediate crude futures, meanwhile, were down 3.4% to $44.92/bbl, the lowest intraday level since May 5.

More specifically for oil, there are signs of a slowdown in China, long the key component of fuel demand growth, as its economy slows.

Two OPEC members not included in the deal also have recently seen increases in production: Libya's output has reached almost 800,000 b/d, a level not seen since 2014, and Nigeria has announced the lifting of force majeure for Forcados exports, potentially making available to the market more than 200,00 b/d. That means that a lot of production in the USA fluctuates with price.

The measures helped stabilise oil prices at the beginning of the year, with the worldwide benchmark Brent crude sticking above US$50 per barrel. Saudi Arabia, in response to surging shale production, has chose to cut exports to the U.S. Saudi crude imports had spiked in the first half of 2017.

Demand grew 1 percent in 2016, roughly in line with the previous two years, but well below the 10-year average of 1.8 percent, BP said in its benchmark Statistical Review of World Energy on Tuesday.

Crude oil futures plunged Wednesday amid a prolonged global supply glut that may worsen despite OPEC's production limits.

Meanwhile, the EIA has reported that shale production in the USA would reach an all-time high in July, at 5.475 million bpd and adding an additional rig to bring the total rig count to 719, continuing the twenty-two-week streak.

Overall, Saudi exports are set to be lower than past year, when the kingdom shipped about 7.4 million bpd on average from May to August.

The problem for the Saudis is that it appears fellow Opec members are not doing as much to help the cause of rebalancing oil markets and therefore boosting prices.

For oil traders, hedging data serves as a leading indicator of future supplies.

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