Markets

Oil price extends drop to 7 month lows, despite OPEC cuts

Oil price extends drop to 7 month lows, despite OPEC cuts

The further decline Wednesday had some analysts wondering what it could take to shake crude prices higher.

OPEC compliance with the output curbs in May was 108 percent, while non-OPEC compliance was 100 percent, the source said.

Oil prices turned lower Wednesday as investors shook off USA data showing that stockpiles continued to shrink and focused on relentlessly rising production amid doubts that the global oil glut is going away. USA drillers have added rigs to fields for 22 weeks, the longest run in 30 years, according to Baker Hughes Inc, Bloomberg added. Unexpected increases in inventories in each of the past two weeks spurred the slide in oil prices to a nine-month low, at one point Tuesday dipping below $43 a barrel. As per the daily fuel revision implemented in the country a motorist in Mumbai pays the highest fuel price.

Before the EIA report, benchmark West Texas Intermediate (WTI) crude for August delivery traded up about 0.5% at around $43.75 a barrel and rose to around $44.04 shortly after the report's release. API also reported gasoline supplies increased by 465,000 barrels and distillate inventories increased by 1.84 million barrels.

Oil prices fell further to a new seven-month low on Wednesday, with the worldwide benchmark for crude sliding below $46 a barrel before recovering somewhat.




While cheaper oil is good news for consumers, another big slump in oil prices has ramifications for both equity and currency markets.

Hedge fund managers have become very bearish about the outlook for oil prices as production from countries outside OPEC grows and threatens to undermine the effectiveness of OPEC's output controls.

Although the cartel may be commended on its ability to follow compliance with compliance with the output curbs in May reaching 106%, this was simply overshadowed by a jump in supply in the same month as output recovered from Libya and Nigeria. If the EIA reports a massive draw, it could support oil prices.

Compliance with an agreement by the Organisation of the Petroleum Exporting Countries and other producers to cut output by 1.8 million barrels per day (bpd) for six months from January reached its highest in May since curbs were agreed a year ago. This encouraged oil bears and triggered a flight of investment capital from United States energy stocks into Treasury bonds.

The main reason for the ineffectiveness of the output deal in reducing the supply glut is rising production elsewhere.


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