EMEA News
Crude Falls as Rising Production Numbers Put Lie to OPEC's Promise of Doubling Down on Production Cuts
After much ballyhoo last month from the Organization of the Petroleum Exporting Countries (OPEC) that it would crack down on cheaters and curb production overall in order to make its troubled output reduction initiative a success, several surveys on Tuesday found that the cartel's production rose in July anyway - and the market responded with a 2 percent drop in crude prices.
West Texas Intermediate fell 56 cents to $49.61 per barrel and Brent dropped 60 cents to $52.12; this is in stark contrast to a market surge of about 9 percent last week on the hope that OPEC would follow through on its get-tough rhetoric.
A Reuters survey found that oil output by OPEC rose last month by 90,000 barrels per day (bpd) to a 2017 high, led by Libya; this prompted Carsten Fritsch, analyst for Commerzbank, to say, "At the current OPEC production level, the oil market is likely to show a supply deficit of only around 500,000 bpd in the second half of the year.
"In other words, OPEC will not achieve its goal of completely eliminating the oversupply by year's end."
A survey conducted by Bloomberg News suggested that the cartel's July output rose by 210,000 bpd, while Petro-Logistics said its output was up by 145,000 bpd last month.
Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions, reacted to Monday's crude losses philosophically, stating, "I think that we were poised for a sell-off because at above $50 the market looked frothy; I think that the recent runup in prices reflected that the market sentiment had gone from bad to less bad but not outright bullish with any conviction."
Others were more explicit in finger-pointing: "People keep taking them at their word and giving it to much credit, and then the rug gets pulled out," said John Kilduff, founding partner of Again Capital, in reference to OPEC.
More bad news on Tuesday came in the form of crude stockpiles climbing by 1.78 million barrels last week, according to American Petroleum Institute data; this is the first crude build since the end of June when compared with Energy Information Administration data.
James Williams, an economist at WTRG Economics, noted, "Any build in inventories at this point is negative for the market, because this is the time of year when inventories drop naturally anyway."
Gene McGillian, market research manager at Tradition Energy, added "If we don't get a really positive inventory report this week, the market is vulnerable to a nice little turnaround" after rallying the last couple of weeks.
But as always when market news turns bad, some analysts see opportunity, and on Tuesday that included Paul Ciana, chief FICC technical strategist at Bank of America Merrill Lynch, who told Bloomberg that "at this point in time, oil prices through $50 would actually be interpreted technically as a bullish breakout.....in my view, as long as that level holds....I think right now is actually a decent point to take a shot at selling oil."
The final week of July saw OPEC determined to deliver good news on multiple fronts, with Saudi Arabia declaring it would limit oil exports, the United Arab Emirates promising to go beyond what it pledged in production cuts, and Nigeria claiming it would reign in its output; it remains to be seen when these promises will be fulfilled.
