Oil Supply Growth to Outpace Rise in Consumption in 2018

Reuters

Global oil markets extended declines Wednesday as investors trimmed price expectations amid increasing signs that the current supply glut will continue to weigh on sentiment.

If correct, that could keep a lid on oil and energy prices as a glut of supply grows despite the efforts of countries in the OPEC cartel and allies like Russian Federation to limit production.

The increase in US gasoline inventories drove down RBOB futures by more than 4 percent, tugging Brent and USA crude futures lower with them, analysts said. It was trading at $46.13 before the supply data. China's crude output in May fell 1.8% from the previous month to average 3.84 MMbpd, the lowest since October, according to Bloomberg calculations based on data Wednesday from the National Bureau of Statistics.

Crude oil inventory concerns have lingered, despite OPEC's curtailment on member and non-member production to the tune of 1.8 million barrels per day, and despite Saudi Arabia's ratcheting down oil exports to the United States, and promise to ratchet down more, by 35 percent in July. "OPEC will therefore have to cut production further next year to ensure that the oil market is not oversupplied". There was also a build in gasoline inventories on the week, although there was a decline in distillate and Cushing stocks on the week.

Gasoline stocks rose by 2.1 million barrels, compared with analysts' expectations in a Reuters poll for a 457,000 barrels drop.

Fesharaki believes the diplomatic crisis engulfing Qatar is unlikely to have a long term or substantial impact on global oil prices. "Ongoing concerns about product demand is spooking the bulls, at a time that gasoline demand should be ratcheting up and driving on bigger crude draws".

Natural gas futures remained flat at 2.989 a gallon at the NYMEX.

The watchdog said its first forecast for 2018 made "sobering reading for those producers looking to restrain supply".

OPEC's own compliance with the cuts has been questioned, and the producer group said in a report this week that its output rose by 336,000 barrels per day in May to 32.14 million barrels per day.

But not all of the recent reports were bearish.

According to IEA's June market report, total OECD oil stocks in April grew by more than the seasonal norm, and have risen so far this year by 350,000 bpd.

Iraq, which had been the No. 2 seller to India for years, was able to overtake the Saudis as Indian refiners have implemented plant upgrades over the past couple of years, enabling them to process crude with a higher sulfur content.

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