Oil rebounds after API report, but analysts have little faith in gains

Still, oil markets received some support from official US data that showed the country's crude inventories fell sharply last week as refining and exports surged to record highs.

The government data boosted oil prices, acting as a salve for the market's ongoing concerns about a global glut.

Despite a 1.8 million barrels per day drop in production from OPEC and Russian Federation since the end of 2016 (see Figure 1), crude oil and product storage tanks in OECD countries have not yet retreated much.

A survey by Reuters found that oil output from the Organization of the Petroleum Exporting Countries (OPEC) increased last month.

Industry data on US oil inventories from the American Petroleum Institute (API) late on May 31 was seen buoying prices.

Brent crude oil was up 11 cents at $50.87 a barrel (bbl) by 6:34 a.m. CT (11:34 GMT), while West Texas Intermediate light crude had gained 24 cents to $48.56.

Russia's Novak said on Wednesday the country would cut production by 300,000 barrels per day (bpd) by October.


Certain OPEC members, such as Libya and Nigeria, and shale oil producer the United States are not part of the agreement, leaving room for further production growth from these exporters. Gasoline stockpiles booked a drop of 2.9 million barrels last week, compared with a fall of 800,000 barrels in the previous week.

Resurgent supplies from US shale drillers and fading growth in fuel demand mean that world oil markets could face another overhang next year, the banks predict. Should this consensus prove to be correct then it will provide considerable support for the Oil bears and will likely damage the CAD and NOK further despite some solid data releases.

U.S. President Donald Trump's withdrawal from the Paris agreement, the landmark 2015 global pact to fight climate change, drew condemnation from Washington's allies and many in the energy industry - and sparked fears that U.S. oil production could expand more rapidly than it is now.

In fact, Saudi Arabia's oil minister said that he sees global supply reaching the five-year average by the end of the year.

OPEC and non-OPEC are making slow progress despite reported high levels of compliance with output cuts implemented from the start of 2017 and recently extended to the end of March 2018.

John Redwood, Charles Stanley's chief global strategist, said: "10 years ago the USA produced 5.1m barrels of oil a day".

While OPEC and its partners agreed on May 25 keep output constrained through to early 2018 in a bid to clear a global glut, the Rosneft CEO said non-participants such USA shale are using the deal to strengthen their market position.


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