Oil prices flat as IEA report counters higher U.S. output

Oil traded flat on Thursday after weekly data indicated a continued rise in U.S. production, while an International Energy Agency (IEA) report said the market was close to balance.

Benchmark Brent crude futures LCOc1 were down 1 cent at $55.85 (44.70 pounds) a barrel at 0907 GMT. The contract was set for an overall weekly gain after touching a one-month high on Wednesday.

U.S. West Texas Intermediate crude futures CLc1 were down 3 cents at $53.08 a barrel. They were on track for their third consecutive weekly gain, the longest since early January.

U.S. production estimates in a weekly Energy Information Administration (EIA) report suggested domestic output continued to climb, potentially undermining an OPEC-led supply cut. [EIA/S]

“We see the weekly inventory and U.S. production data being an important oil price driver but it conflicts with the OPEC signals,” said Hans van Cleef, senior energy economist at ABN AMRO Bank in Amsterdam.

“We will see some sideways trading in the coming weeks.”

On the other hand, the Paris-based IEA said on Thursday that it sees the global oil market as close to balancing after a fall in stockpiles in developed countries.

The market has been oversupplied for three years and members of the Organization of the Petroleum Exporting Countries as well as some non-OPEC producers have agreed to slash output to rein in the glut.

Latest OPEC data showed members had cut March output beyond what they had promised.

OPEC meets on May 25 to consider whether to extend the supply cut beyond June. Most members, including Saudi Arabia and Kuwait, are leaning towards this if other producers, including those outside the group, also agree, OPEC sources told Reuters last month.

The IEA trimmed its oil demand growth forecast for 2017 by 40,000 barrels per day and warned that its revised level of 1.3 million barrels per day “could prove optimistic”.


It is not clear to me why it was expected that oil price will improve if OPEC extends the agreement on crude oil production cuts. I mentioned it before, the reason for sustained low oil price environment is not the OPEC or non-OPEC production. It appears that the reason for the global oversupply is the U.S. shale revolution.

U.S. shale producer are quick to react on slightest oil price shift. Because of the Huge number of DUC they are able to boost oil production in relatively short period of time. Unless half of them go out of business or dramatic rise of global demand, I do not understand why OPEC meeting in May is presented as decisive factor?

It is also necessary to highlight that, so far, there is nothing done to develop a mechanism to regulate the U.S. output which could be similar to OPEC’s mechanism. There is also no signs that global demand has a chance to shift upwards any time soon.

Therefore, it is logical to conclude that if shale oil production in the U.S. remains unregulated in terms of the volume produced, any suggestions that we finally see the light at the end of the tunnel, in my opinion, are baseless.