Reports of an increase in OPEC's output by 335,000 barrels per day (bpd), due to increases by Nigeria and Libya, both of which are exempt from production cuts is invalidating the efforts of Saudi Arabia to balance the markets.
The American Petroleum Institute (API) reported a build of 2.75 million barrels in United States crude oil inventories, compared to analyst expectations that markets would see a draw of 2.7 million barrels for the week ending June 9-a 5.45-million-barrel discrepancy that is bound to unsettle already unsettled markets.
Oil inventories across the world's most industrial nationsrose in April by 18.6 million barrels to 3.045 billion barrels, thanks to higher refinery output and imports. "I would think that at some point the market is going to be pricing in even greater risks that the Fed might be moving too quickly", said Mark Cabana, a rates strategist at Bank of America Merrill Lynch in NY. New supplies from OPEC's competitors will be more than enough to meet growth in demand next year, the IEA said in a report Wednesday. For one, higher-than-expected shale oil production in the USA partly offset Opec and non-Opec production cuts at the beginning of this year.
"A lot of producers held back on locking in hedges in the first quarter because OPEC cut their historic deal and they thought there would be a linear shift higher in prices".
OPEC and non-OPEC countries made a decision to extend oil output cuts for nine months in Vienna on May 25.
Ross said surplus oil stocks were being drawn down, "but not at the rate Opec would like to see" because of USA production.
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Meanwhile, U.S. drilling activity has continued apace RIG-OL-USA-BHI, driving up U.S. output C-OUT-T-EIA by more than 10 percent since mid-2016 to above 9.3 million bpd.
The pullback in hedging was driven by rising service costs and expectations that prices would continue to rally after the Organization of the Petroleum Exporting Countries extended those cuts in May, analysts said.
Still, supplies outside OPEC will grow even faster, by nearly 1.5 million barrels a day, with about half the expansion coming from USA crude production.
"We think this effectively takes September off the table", said Ian Lyngen, head of USA rates strategy at BMO Capital Markets in NY, in reference to the impact of the data on the probability of a September Fed rate increase.
Oil prices edged higher on Tuesday after Opec detailed supply cuts around the world, but the cartel also said overall production rose in May, and crude stayed well below US$50 a barrel despite the modest recovery.