U.S. oil production seen thwarting OPEC effort to boost prices

The bearish inventory report added to the current negative sentiment on oil, after the International Energy Agency said Wednesday that non-Opec output was set to increase over the near term.

USA crude inventories rose 2.753 million barrels at the end of last week, the American Petroleum Institute (API) said on Tuesday, well above the 2.739 million barrels decline expected.

At 242.4 million, USA gasoline inventories were 9 percent higher than the five-year average as demand was down 1.2 percent over the last four weeks when compared with a year ago, according to EIA.

That suggests that the global crude oil market has got some support from the efforts of the Organization of the Petroleum Exporting Countries (Opec) and non-Opec oil producers to cut production.

Originally, Opec members had agreed to cut production for six months beginning from the start of the year in a bid to reduce the glut of oil supplies on the shore up prices. Brent futures are trading at higher prices for further – dated contracts, which is an encouragement for more production rather than less.

“The revisions to non-OPEC supply growth have been much greater than the upward adjustments to world oil demand growth, accentuating the imbalance in the market”, it said.

OPEC and other producers have agreed to restrict output and cut production by 1.8 million bpd to March next year to soak surplus crude from the market.

But adherence to the cuts is under scrutiny and the producer group said this week its output rose by 336,000 bpd in May to 32.14 million bpd.

The crude oil bulls had been waiting for the United States driving season to spur gasoline demand, which was expected to increase the drawdown in crude oil inventory.

“In 2018, we expect non-OPEC production to grow by 1.5million bpd which is slightly more than the expected increase inglobal demand”.

It also put Iran’s refinery capacities growth rate per annum at 2.0 percent in 2016.

“Oil has been weighed down by the market’s impatience with the generally slow pace of the global inventory drawdown amid a significant recovery in global oil supplies, particularly from the US”, OPEC said in its June report today.

A report earlier this week found growing oil supply is set to outpace demand next year as production outside Opec is expected to grow twice as quickly in 2018 as it will this year.