On Monday, Oil prices slipped on signs that global fuel markets remained full despite OPEC-led crude production cuts that have been more successful than initially expected.
Brent Crude Futures were trading at $56.55/b., down 15 cents from the previous close. West Texas Intermediate (WTI) Crude Futures were down 12 cents at $53.74/b.
The OPEC and other producers including Russia have agreed to cut output by almost 1.8 million barrels per day during the first half of 2017 in a bid to restrain a global fuel supply overhang.
There was skepticism that all producers would actually make the promised cuts, but compliance with the announced reductions is now estimated to be around 90%.
ANZ bank said on Monday: “Traders will be keenly awaiting the release today of OPEC’s monthly report. If production cuts are coming through as suggested, we should see Oil prices pushing higher.”
In the United States, rising drilling activity is pushing production and undermining OPEC’s efforts to reduce output. During the same week last year, when prices were around $30/b., there were just 439 active oil rigs. In Russia, which is participating in the cuts, there are signs that output may be falling but that exports remain high, as its producers shield their export markets at the cost of lower domestic supplies or by cutting into inventories.
OPEC might have to extend its cuts for a longer period than the currently planned first half of 2017, but since global Oil demand is expected to rise between 1.3 million bpd and 1.5 million bpd in 2017, OPEC’s challenge is that the longer and deeper it cuts, the more it concedes market Share to competitors.
In the United States, OPEC is facing the rising flood of shale driven production. In China, OPEC’s leader Saudi Arabia has already been overtaken by Russia as the biggest Oil supplier.