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Oil falls following U.S's withdrawal from Paris Agreement

06 June, 2017, 06:39 | Author: Caleb Marshall
  • Russian Economic Development Minister Maxim Oreshkin

Oil futures rose on Thursday after slumping to a three-week low in the previous session, buoyed by a report from an industry body that showed United States crude stockpiles had fallen more than expected.

Official data showed crude inventories in the United States, the world's top oil consumer, fell sharply last week as refining and exports surged to record highs.

As OPEC and other major producers cap their production, analysts see US crude output continuing to trend higher as long as global prices stay above $40, a threshold at which many large USA oil companies can produce at a profit.

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

"I think it's still going to be a bit of a debate on the true impact it can have on the oil market", said Olivier Jakob, strategist at Petromatrix.

President Donald Trump's controversial decision to withdraw from the 2015 Paris climate agreement on Thursday sparked additional concerns that USA oil production could expand rapidly in the absence of a stringent focus on curbing the use of fossil fuels.

"Growth in oil production from U.S. shale acreages will remain a real threat that could scupper much of the benefits from output cuts by OPEC and some non-OPEC members", he said.

According to the U.S. Energy Information Administration, crude stockpiles fell 6.4 million barrels in the week-ended May 26.

Production cuts by OPEC and its partners are taking longer than expected to eliminate the surplus as US shale drillers boost production with surprising speed.

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However, US crude production rose to 9.34mn bpd last week, up almost 500,000 bpd from a year ago.

The Organization of the Petroleum Exporting Countries and other producers including Russian Federation are trying to restrict output to drain stockpiles that are close to record highs in many parts of the world.

"There are signs that the 1.8-million-barrel cut is not really what the market is feeling because of rising production in the US, Libya, Nigeria and even the North Sea", said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut.

Traders are also likely to respond to this week's Baker Hughes rig count report that could show an increase for the 20 consecutive week.

In Libya, output has recovered to 827,000 bpd after technical problems were resolved at the Sharara field.

That has the market really concerned and each weekly rise in the number of active rigs in use in the U.S. adds to the concern and pressures on prices.

Both Moscow and Riyadh said cooperation would continue beyond the current agreement as both countries were still trying to find ways to co-exist with U.S. shale oil producers, which are not part of the global output reduction deal.

Apart from booming shale output, supply recovery in Nigeria and Libya, the two OPEC members exempt from the deal to cut output, pose additional risks for crude markets, analysts said.

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