Muscat: Oman crude oil prices fell to pre-Opec (Organisation of the Petroleum Exporting Countries) agreement levels on glut concerns as shale production offset price gains made by output cuts.
Futures, for delivery in May, traded at $51.32 on close of last week’s trading at the Dubai Mercantile Exchange (DME), falling more than 6 per cent in three days. Other oil benchmarks followed suit, with Brent slumping to $51.39 and West Texas intermediary (WTI) trading at $48.50, below the psychological mark of $50 for the first time since December.
The latest drop in prices is a result of statistics released by the US Energy Information Administration (EIA), which shows American oil inventories surged by 8.2 million barrels last week to a record 528.4 million barrels, forcing speculators to abandon the long position in oil as a market overhang loomed over the troubled petroleum industry.
Baker Hughes reported rising US rig count for a straight eighth week, lifting the rig count to 617, the highest since September 2015. EIA reported a rise of 56,000 barrels per day last week in US oil production to 9.088 million bpd (barrels per day), highest in more than a year. Since the bloc’s announced cuts, US drillers have brought 140 rigs online.
“It is when we thought things are calming down that prices are falling again. The selling trend among investors is only making it worse for the oil prices as it shows a lack of optimism. Oman has taken a safe approach by budgeting oil revenues at $45, but we want oil at a higher rate to continue with full fledged diversification plans. I doubt if another agreement of production cuts will help Opec. It doesn’t look like shale producers are going to reduce production at these prices,” an economist at a major finance firm in Oman said.
Opec had reached an agreement in Vienna last year to cut production by nearly 1.8 million barrels a day in efforts to control glut and according to reports, oil producing countries, which were a part of it have shown unprecedented compliance with Gulf Cooperation Council producers, adhering to production limits religiously. Oman slashed 45,000 barrels a day as a part of the deal.
The IEA has quantified compliance rate at 90 per cent, highlighting Opec members throttling the output by a million barrels a day. However, reports suggest that inventories across the globe have fallen slower-than-expected.
“I think oil will stabilise between $40 and $50. That is the price where shale producers will produce oil at nearly break-even rate and it will be hard for them to add rigs like they are doing now. I think we should start getting used to these low prices of oil. After all, if Oman can do well when price of oil was at $10 a barrel, we can certainly do much better at $40 or $50,” he said.