Increased oil supply undermines Opec’s output cuts
London — Oil prices steadied just above seven-month lows on Tuesday after news of increases in supply, a trend which has undermined attempts by oil cartel Opec and other producers to support the market through reduced output.
Benchmark Brent was up 15c at $47.06 by 8.20am GMT. On Monday, it fell 46c, or 1%, to settle at $46.91 a barrel. This was its lowest close since November 29, the day before Opec and other producers agreed to cut output by 1.8-million barrels per day (bpd) for six months from January.
US crude oil was 15c higher at $44.35 a barrel. It fell 54c on Monday to $44.20, its lowest close since November 14.
Both benchmarks are down by about 15% since late May, when Opec, Russia and other producers extended their limits on production until the end of March 2018.
"Recent data points are not encouraging," Morgan Stanley analysts said in a research note. "Identifiable oil inventories — both crude and product in the Organisation for Economic Co-operation and Development (OECD), China and other selected non-OECD countries — increased at a rate of about 1-million bpd in quarter one."
Opec supplies jumped in May as output recovered in Libya and Nigeria, two countries exempt from the production reduction agreement.
Libya’s oil production rose more than 50,000 bpd to 885,000 bpd after the state oil company settled a dispute with Germany’s Wintershall, a Libyan source told Reuters.
Nigerian oil supply is also rising, industry figures show. Exports of Nigeria’s benchmark Bonny Light crude oil are set to reach 226,000 bpd in August, up from 164,000 bpd in July, loading programmes show.
"The increasing August export programme in Nigeria and the jump in Libyan oil output should pressure oil prices further in the short term," said Tamas Varga, senior analyst at London brokerage PVM Oil Associates. "If we get bearish US oil statistics this week, we could see a test of $45 on Brent," he said.
US oil production has been rising quickly this year, feeding the global glut. Data on Friday showed a record 22nd consecutive week of increases in US oil drilling rigs. But Saudi energy minister Khalid al-Falih said the oil market is heading in the right direction and just needs time to re-balance, the London-based newspaper Asharq al-Awsat reported on Monday.