Oil prices slipped on Wednesday despite a larger-than-expected decline in U.S. crude and gasoline inventories, as investors remained concerned about high global crude output and the nagging supply glut. Brent crude futures fell 27 cents at $45.75 a barrel by 11:27 a.m. EDT (15:27 GMT), after touching seven-month lows at $45.53. U.S. crude futures fell 17 cents to $43.34. On Tuesday, U.S. crude hit not seen since September on Tuesday.
The U.S. Energy Information Administration said crude inventories declined by 2.7 million barrels, exceeding expectations for a 2.1 million-barrel drop. This data supported prices only briefly. “Updated inventory balances don’t represent a game changer,” said Anthony Headrick, energy market analyst at CHS Hedging LLC in Inver Grove Heights, Minnesota. “Particularly while lower 48 crude production rose 25,000 barrels per day.” Iranian oil minister Bijan Zanganeh said
OPEC members were considering deeper cuts in output, but should wait until the effect of the current level of production was clear. Other delegates were said to be skeptical of such measures. “Market fundamentals have not changed,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London. “U.S. crude and gasoline stockpiles are significantly higher compared with their five-year averages, which will weigh on prices. Meanwhile, oil output in the country is still rising.”
So far this year, oil has slid 20 percent, its weakest performance since 1997 for the first half of the year, a period when oil has tended to perform well. Brent has risen in the first half of the year in all but six years over that period. “Now everyone seems to be negative,” said Commerzbank analyst Eugen Weinberg. Compliance with an agreement by the Organization of the Petroleum Exporting Countries and other producers to cut output by 1.8 million barrels per day from January reached its highest in May. Production is rising from Nigeria and Libya, two OPEC countries exempt from the deal, and global inventories of both crude and refined products remain well above long-term averages. While compliance with the output deal reached 106 percent in May, BMI Research said in a note that activity prior to the deal made such cuts less potent.
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Producers including Iraq, Saudi Arabia and Russia “aggressively ramped up output in the run-up to the deal, fast-tracking projects, expanding drilling programmes and deploying spare capacity,” BMI said. U.S. crude production has surged more than 10 percent since mid-2016 to 9.35 million bpd, nearing levels of top producers Russia and Saudi Arabia.