The analyst also said that the cartel should have “done more” at its meeting last month, and added that he thought it was in for a period of “perpetual [production] cuts”.
The news underscored the market’s ongoing struggles with weak gasoline demand in the United States, the world’s top consumer of the motor fuel, and rising production, especially from US shale drillers.
American refineries bought crude last week, because commercial stocks fell by 1.7 million barrels to 511.5 million, but it appears not much gasoline was sold because domestic demand remained low.
The resurgence of USA shale is already complicating OPEC’s efforts to draw down global stocks in 2017, as well as threatening its market share in 2018.
This was “due to changes in fundamentals, especially the shift in United States supply from a forecast contraction to positive growth”, the report said.
“OPEC 2017 year-to-date exports are only down by 0.3 million barrels per day (bpd) from the October 2016 baseline”, analysts at AB Bernstein said. Additionally, the IEA projects that non-OPEC nations collectively will expand their output by 700,000 B/D in 2017 and 1.5 million B/D in 2018, slightly more than the forecasted growth in global demand.
The US government’s Energy Information Administration has raised its prediction for domestic output growth in 2017 to 460,000 barrels per day from a predicted decline of 80,000 barrels per day in December.
At this point in the cycle, it may be time for OPEC and US shale drillers to heed Stein’s Law.
The global oil market will now focus on the weekly change in the oil rig count data to be released Friday. This has happened despite of OPEC-led production cuts to support the crude market.
“The industry continues to turn a crude oil surplus into a gasoline and distillate product surplus”, Andrew Lipow, president of Lipow Oil Associates in Houston said.
“I think there’s evidence that we’re starting to see reactions by shale producers”, said U.S. Bank Wealth Management’s Haworth, “New investments are slowing down”.
The world’s oil glut is likely to persist next year in a blow to efforts by major producers to shore up the oil price by cutting output, according to a leading energy authority. Prices slid $1.72, or 3.5 percent, to $47 on Wednesday. Even a fresh agreement in May, between the OPEC and participating non-OPEC producers, failed to lift price.
In any case, the oil market is already testing the shale drillers’ resolve.