US Sees Crude Output Breaking 48-Year-Old Record in 2018

Andrew Cummings
June 12, 2017

Oil prices slid hard on Wednesday on double-pronged concerns that the rift between Saudi Arabia and the other Gulf nations with Qatar, which began Monday, will wind up boosting output, and unexpectedly high US inventories of crude and gasoline.

The price of Brent Crude fell 4.1% to $48.06 a barrel, its lowest level since November while West Texan Intermediate declined 5.1% to $45.72 a barrel.

With a production capacity of about 600,000 barrels per day, Qatar's crude oil output, one of OPEC's smallest, is dwarfed by the near 10 million bpd churned out by the cartels de-facto leader, Saudi Arabia.

The U.S. Energy Information Administration (EIA) released its weekly petroleum status report Wednesday morning.

Here's a chart showing the level of U.S. crude oil inventories by days of supply, courtesy of the Commonwealth Bank, comparing where it now sits compared to the levels of recent years.

Focus is likely to shift to USA inventories ahead of government data Wednesday. Meanwhile, market analysts anticipated a 3.1M-barrel decline during the reported week.

"Political disputes between OPEC members are nothing new, but history has shown that shared economic interests to keep supply discipline has trumped other interests", said Vivek Dhar, a commodities strategist at the Commonwealth Bank of Australia.

Crude prices fell by more than $2 a barrel, or about 4 percent Wednesday morning with crude trading in NY at about $46 a barrel. Crude stockpiles at the Cushing oil hub in Oklahoma fell 1.4M barrels last week.

In the nearer term, with fuel production and consumption largely balanced according to the EIA, the market is focused on still bloated inventories.

The news initially pushed Brent crude prices up as much as 1 per cent as geopolitical fears rippled through the market.

USA light crude was down 20 cents at US$47.20.

In parallel, gasoline inventories jumped by 3.3m barrels (consensus: 0.6m), while those of distillates did so by 4.4m barrels.

Meanwhile the agency expects global petroleum and other liquids supply to increase to 98.3 million barrels per day in 2017 and to 100.16 million barrels per day in 2018.

"If we get another drop in USA inventory levels, we might begin to see the emergence of some confidence that 1.8 million barrel cuts will tighten inventories", McGillian said.

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