No signs of recovery in oil prices on supply glut

Dhaka,  Wed,  20 September 2017
Published : 09 Jul 2017, 22:08:34

No signs of recovery in oil prices on supply glut

No signs of recovery in oil prices on supply glut
The oversupply in the oil market seems to be getting worse, with no signs of recovery in prices.

The US rig counts rose to the highest level since April 2015 even as OPEC exports hit a two-year high, exacerbating concerns over oversupply and hitting prices hard, reports The Gulf News.

On Friday, Brent crude fell 2.91 per cent to close at $46.71 per barrel, after falling to $46.28, its lowest in more than a week. The West Texas Intermediate closed 2.83 per cent lower at $44.23 per barrel. Both the benchmarks marked the sixth weekly decline in the past seven weeks.

"Lower lows and lower highs continue to attract short-selling, and with OPEC currently unable to bring down production, the price of Brent crude oil is likely to remain stuck below $50 per barrel for the time being," said Ole Hansen, head of commodity strategy at Saxo Bank.

Despite healthy compliance by some members of the Organisation of Petroleum Producing Countries (OPEC) to cut output, oil prices have not been able to sustain the keenly watched $50 per barrel mark due to rising US output.

Nigeria and Libya, which are exempted from cutting production, have been ramping up production, making the case weak for any signs of the much-talked about rebalancing in the market.

"With OPEC failing to lower production as Libya and Nigeria continue to ramp up output, the oil price could be forced to reach a level where US high-cost producers refrain from increasing production further," Hansen said.

But analysts say they would be waiting for more drawdown in US inventories and summer demand in the west for market for any signs on rebalancing to support the market.

"To support prices in the mid-$50s, Opec would probably need to lower production by another 200-300 thousands of barrels per day and extend the output agreement to end-2018. We find this unlikely, which then raises the question where else the oil price will force the market to rebalance? The most likely place for this is US shale, with its short cycle times and current strong growth trajectory," said Martijn Rats, an analyst at Morgan Stanley said in a note.

The Opec and non-Opec countries led by Russia agreed to extend production cuts by another six months in May by 1.8 million barrels per day inorder to curb excess supplies from the market, but that move has yet to yield desired results.

Meanwhile, OPEC is considering the possibility of introducing limitations on the oil output of Libya and Nigeria, to support the deal between the cartel and non-OPEC producers, according to the National Accord, an e-newspaper of Nigeria.

The growing output of the two nations has caused concerns of the parties to the deal between OPEC and non-cartel states, and the representatives of Libya and Nigeria have been invited to participate in the ministerial meeting of the monitoring committee on the oil production cuts agreement, The Wall Street Journal noted.

The media outlet added, citing its own sources, that OPEC and Russia would ask the two African nations to provide information about the level of oil production they could sustain that could become the first step toward limitations on their output levels.
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