Published: Tue, July 04, 2017
Markets | By Terence Owen

Canada oil output threatens to derail OPEC plan

Canada oil output threatens to derail OPEC plan

Brent crude, the global oil benchmark, rose over 7% last week while West Texas Intermediate, the US gauge, gained 6.5%, with both benchmarks pushed higher by data showing the first decline in USA oil-drilling activity since January.

Brent crude futures fell down 13 cents to touch at $48.64 a barrel, while United States crude futures dropped 4 cents to $46, reported Reuters.

West Texas Intermediate contracts for August delivery closed Friday at $46.04 a barrel, up $1.11 (2.47 percent) on the day and up $3.03 (7.04 percent) for the week. (BHI - Free Report) reported a rare fall in the US rig count (number of rigs searching for oil and gas in the country) - the first decrease in 24 weeks. Libya and Nigeria were exempted from OPEC's production cuts and have contributed to a rise in OPEC's output in June, regardless of the organization's commitment to cutting production.

Jeffrey Halley, a senior analyst at OANDA, said that the weekend agreement on the reduction of oil production in OPEC and non-OPEC countries has affected the price.

The economists comments come in the context of the Organisation for Petroleum Exporting Countries (OPEC), having previously announced that its members would cut production in order to force the price upwards.

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That combined two-year Canadian increase is equal to nearly a third of Opec's production cuts that it made with allies like Russian Federation at the beginning of this year in an effort to raise prices. Copper bottomed out at a low of $5,462.50 a ton on May 8, below Goldman's three-month target of $6,200. Last week, the U.S. Energy Information Administration reported a 2,5-million-barrel decline in crude oil inventories, but it also reported a growth in U.S. crude production.

Other analysts, however, believe that the trend of rising output may soon abate and the weekly fall in the USA oil-rig count backed that up. Demand for commercial fuels could surge in the coming days as American holiday travelers take to the road for a long weekend to commemorate Independence Day, July 4. This figure is the highest since June 2013.

So much for the bear market in oil. Goldman said it is also getting a little late in the game to hope for inventories to balance by the end of the OPEC compliance period in March 2018. Does it point to decelerating US production, or is it just a blip before growth resumes again?

Bank of America Merrill Lynch analysts cut their forecasts on Friday, saying the rise in output from Libya, Nigeria and USA shale fields coupled with weaker demand growth, meant the market would be more oversupplied than previously expected.

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