Oil prices fell more than one per cent yesterday as investors made record cuts to bet on rising prices after strong drilling data from the United States fed concerns about the effectiveness of production cuts led by Organisation of the Petroleum Exporting Countries (Opec) to curb a supply glut, Reuters reported.
So far the cutback has not had the desired effect, as the USA has stepped up to bridge the gap, which resulted in decline of oil prices by more than 10% in the initial month of the year.
The IEA said crude stocks in the world's richest nations rose in January for the first time since July by 48 million barrels to 3.03 billion barrels.
"This unwinding of position is both a cause and reflection of the big fall in crude oil prices when the cracks in the Opec/non-Opec deal emerged and when it seems like it became evident shale oil is back and the new swing player", said Greg McKenna, chief market strategist at brokerage AxiTrader. Non-OPEC countries also agreed to cut production by 0.6 million barrels per day.
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The price of Brent crude is now trading at $51.92 while West Texas Intermediate (WTI) is at $48.45 a barrel with analysts suggesting oil prices could face further pressure if managers decide to sell off the remaining net-long positions totalling 820 million barrels, according to the FT. Declining production in the Midwest, expansions in pipeline capacity, and more attractive imports due to narrowing crude oil price spreads all contributed to reducing movements of crude by rail. This is the highest level since September, 2015. "The seven major oil and gas basins in the country would have an output of more than almost five million barrels a day collectively", it said.
Despite increasing crude oil prices throughout most of 2016, total US crude oil production in 2016 was below its 2015 level. The gave rise to hopes that the oil price war started by Saudi Arabia more than two years ago may finally be coming to an end.
In 2016, the first full year with no restrictions on exports of domestically produced crude oil, USA crude oil exports averaged 520,000 b/d, 55,000 b/d (12%) higher than in 2015.
"With the Baker Hughes rig count rising for a ninth straight week, investors will be hoping that Opec this week will reiterate commitment to production cuts, perhaps going so far as to begin talking up chances of further cuts in June". But shale oil companies' cost-cutting efforts of the past few years virtually ensure that we won't see a return to $100-per-barrel oil in the next few years.