Crude Soft as OPEC's Oil Output Hits a 2017 High

Experts point to the end of the summer driving season as a harbinger for further trouble. File Image / Pixabay

Despite an Organization of the Petroleum Exporting Countries (OPEC) monthly report released Thursday that boosted its forecast crude demand and highlighted falling stockpiles, the market demonstrated its on going concern with global oversupply by causing West Texas Intermediate to drop 97 cents to $48.59, and Brent for October settlement to fall 80 cents to $51.90.

Fueling the pessimism is the OPEC  report, which for all of its rosy predictions couldn't avoid revealing that the cartel's output in July climbed by a 2017 high of 173,000 barrels per day (bpd) to 32.87 million bpd - driven by Libya, Nigeria, and Saudi Arabia, the latter of whom these past few weeks has repeatedly stated it will do whatever it takes to rebalance the market.

Phil Flynn, senior market analyst at Price Futures Group Inc., said, "What you're looking at is a nervous market: $50 is a major psychological number for this market and it may need to see a little bit more evidence of falling production in the U.S. and strong demand to keep it growing higher."

Although Energy Information Administration data showed that U.S. crude stockpiles slid by 6.45 million barrels to 475.4 million last week, Michael Wittner, the head of commodities research at Societe Generale, warned that "We expect to see fundamental support from U.S.-led stock draws for the next few weeks, but we're really cautious because we don't think it's going to last that long.

"It's going to turn seasonally bearish in September and October."

And while the OPEC report predicts that rising interest rates in developed nations and a reduction in geopolitical tensions will boost growth, left unsaid are troubling developments that are bound to negatively impact the market, such as Russian oil producer Gazprom Neft, which on Thursday said it was "economically feasible" to resume production in mature fields after the OPEC cutback agreement expires next year.

It's unclear how OPEC determined that geopolitical tensions will ease in some parts of the world in the near term, but at least one respected analyst is betting that tension rapidly spilling over into bedlam in one South American location will effectively remove more barrels from the market and boost stagnant prices.

The analyst in question is Helima Croft, global head of commodity strategy at RBC Capital Market, who earlier this week reiterated her belief that Venezuela is heading towards bankruptcy at the very least, thus causing crude production to collapse.