Oil edges towards $76, supported by tight supplies

Randal Sanchez
May 30, 2018

USA crude oil futures have dropped by almost 10 percent to trade around $66.50 per barrel, down from about $73 last week.

USA crude production has increased by about 25 percent since mid-2016 as producers look to capitalize on rising prices.

Crude oil inventories in the Organization for Economic Co-operation and Development have fallen below their five-year average level, a high-ranking OPEC official told S&P Platts this week.

The prices were on a roller coaster after data from EIA showed that U.S. crude inventories rose 5.8 million barrels last week and gasoline stocks increased by 1.9 million barrels.

US oil prices extended losses on Tuesday amid expectations that Saudi Arabia and Russian Federation could pump more crude to compensate for potential supply shortfalls.

The Schork Report Publisher Stephen Schork on the outlook for oil prices.

The sanctions come amid an oil market that has been tightening due to strong demand, especially in Asia, and as top exporter Saudi Arabia and No.1 producer Russia have led efforts since 2017 to withhold oil supplies to prop up prices.Here's one under-reported factor that may explain Russian and Saudi Arabian willingness to turn their backs on nearly 18 months of Opec oil supply cuts - the spread between Brent crude and West Texas Intermediate has reached its widest level in three years. However, an oil expert said these are short-term blips and there are plenty of options for oil producers to ease price hikes.

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Looking back at history, in 2016, an oversupplied market resulted in oil prices falling to their lowest in more than a decade of below $30 a barrel. What's going on in the global oil market to trigger this decline, which is welcomed the world over by energy consumers?

USA energy companies added 15 rigs looking for new oil in the week ended May 25, bringing the rig-count to 859, the highest level since 2015, in a strong indicator that American crude production will continue to rise.

Since a year ago, oil producing countries have cut back production in an attempt to offset dipping prices, withholding as much as 1.8 million barrels per day.

API, EIA, US oil rig count next of relevance later in the week.

The analyst said such a scenario remained "entirely possible". Although US oil exports hit a record high of 2.6mn bpd in the middle of May, there is concern that the US port infrastructure has insufficient capacity to support the increasing supply.

OPEC wants to world to know that it is in control and has the power to raise output just enough to replace supply lost to the turmoil in Venezuela and the sanctions on Iran. U.S. President Trump last month criticized OPEC for contributing to higher crude.

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