Oil drops on rising United States drilling, steady OPEC supply

Andrew Cummings
March 21, 2017

The report indicated that during the week before inventories of crude oil in the USA declined by 237,000 barrels, which goes against the normal trend of increases in crude inventories during this time of year. Members which agreed to the production freeze and cuts were able to reduce production from 29.9 million to 29.7 million bpd.

Russian Federation undertook to slash oil production by 300,000 barrels per day in the first half of 2017 versus October 2016 within the framework of the OPEC agreement.

The first issue that has dragged oil prices down is that USA inventories have continued to rise year to date.

After seeing a few days of plummeting oil prices, we are, once again, on the mend. Though the rig count is still way below the peak of 1,609 reached in October 2014, the recovery from the six-year lows of 316 rigs in May 2016, has been outstanding.

Right now, the market is showing some increased confidence in the oil patch. Oil production was cut by 3% with Surgutneftegaz to 166,000 tonnes per day, by 3.5% with Tatneft to 79,600 tonnes daily, and by 4% with Russneft to 19,200 tonnes per day.

May-loading for Qatar Marine crude sold at discounts to its official selling price for the first time in four months while spot premiums for Russian and Malaysia's flagship Kimanis crude have also hit lows. In what follows, I will cover this data and give my thoughts on not only for what it means for the oil market as a whole but also what it should mean for investors in companies like Whiting Petroleum (NYSE:WLL), Chesapeake Energy Corp.

What's more from this is that, if the IEA numbers are accurate, there will be some areas of trouble this year compared to last.

Oil companies have dramatically reduced their costs in the past two years or so. That said, it appears that there are still opportunities left in the best parts of the US shale oil patch. Opec producers have implemented 100 per cent of the agreed cuts as per latest data with Opec figures reflecting a cut higher than expected.

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