Price Of Oil Inches Up Slightly As Glut Weighs Heavily On The Market

On Monday the price of oil went up slightly as caution ruled the market as it increasingly becomes clear that the OPEC-led efforts to reduce supplies are being undermined by drilling activity in the United States. There was also subdued trading activity because of bank holidays in Britain, the United States and China.

The price of Brent crude increased by 14 cents or about 0.2% to settle at $52.29 a barrel. Last week the price of Brent decline by close to 3%. On Monday the price of WTI crude increased by 19 cents to settle at $49.99 a barrel.

“This is a little bit of a bounce back from last Thursday when we had a really heavy drop,” an energy economist at the Arkansas-based WTRG Economics James Williams, said before adding that at current production levels OPEC will not be able to balance supply in nine months.

Physical oil stockpiles

Both OPEC and non-OPEC producers reached an agreement last week to extend the production cuts they had set last year by nine more months. The cuts were supposed to come to an end in the middle of this year but they will now be extended to March 2018.

According to an analyst at Commerzbank, Carsten Fritsch, the high compliance was not likely to last and this would mean that physical oil stockpiles would remain near their record levels. At present the cuts in output have not managed to lift the prices of oil in a big way beyond $50 a barrel.

U.S. shale drilling

As OPEC and non-OPEC producers such as Russia attempt to reduce inventories, the production in the United States has been rising. Since the middle of last year, the production level has risen by 10%. Currently the United States is producing over 9.3 million barrels per day which is also close to what major producers such as Saudi Arabia and Russia produce in a day.

For nineteen straight weeks, drillers in the United States have added rigs and now the total number stands at 722. This is the highest level since April 2015. The addition rate has also enjoyed a record run according to Baker Hughes Inc, an energy services firm. It has been estimated that even if the number of rigs are not increased any more, the level of U.S. crude output would rise by approximately 785,000 barrels per day in the next couple of months. Most of this production will take place in Niobrara, Bakken, Eagle Ford and Permian.

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