Oil prices fall below $45 for first time in 2017

Oil prices fell below the $45-mark for the first time in 2017 on Wednesday, slipping further into bear market territory on growing skepticism of OPEC’s ability to rebalance the market.

Brent crude was last flat at $44.81 per barrel (bbl), while WTI was 0.1 percent higher at $42.55/bbl, despite data from the Energy Information Administration (EIA) on Wednesday indicating that US crude inventories fell by 2.5 million barrels in the week to June 16.

Prices have slumped 20 percent since the start of the year, reversing gains made after OPEC and non-OPEC members agreed in December to cut output by a combined 1.8 million barrels per day for six months, starting Jan. 1, 2017.

The deal was extended at the producer group’s meeting in May for another nine months until March 2018. However, the output cuts were not deepened.

“The market was disappointed with the OPEC meeting outcome on May 25. An extension was already priced in, the market wanted to see cuts increased,” Spencer Welch, director – oil markets and downstream at IHS Markit, told Argaam.

Meanwhile, higher US production growth also continues to surprise and worry the market, offsetting the impact of OPEC-led output cuts.

“Every time someone does a forecast, US production growth seems to find a way of surpassing it. This is pushing prices down,” Welch said.

American shale production continues to post aggressive growth, with Baker Hughes data showing that the US oil rig count has been on the rise for 22 weeks in a row, increasing by six to 747 last week.

Another factor weighing on sentiment is increasing production from OPEC members Libya and Nigeria, which are not included in the supply cuts.

“It is anyone’s guess how long they are able to sustain this; recent history suggests this could reverse at any moment. A price reversal upwards all depends on what happens in Nigeria and Libya,” Welch said. 

Write to Jerusha Sequeira at jerusha.s@argaamnews.com