Rig count hangover bruises crude oil prices

Goldman Sachs thinks US shale production will rebound quickly in 2017 back to the 2015 levels.
Goldman Sachs

"But the magnitude of the improvement was really not known", said one Gulf delegate, as quoted by the Financial Times. However, crude oil prices are down 12.7% YTD. However, a deal to cut output had the side-effect of triggering a surge in USA production and a jump in the inventories to an all-time high. For more on crude oil prices, read Part 1 of this series.

OPEC's February report showed total output had fallen from 32.097 million bpd in January to 31.958 million bpd. OPEC members actually exceeded their targeted cuts, partially offsetting a 64% compliance rate among non-members. Saudi Arabia has reduced its output by 300,000 barrels per day more than its promised cuts; hence, the kingdom had the moral right to be indignant that other countries are not picking up the slack. On Nov. 30, the cartel officially announced that its members would cut their production by 1.2 million barrels per day, while non-OPEC members would reduce production by an additional 600,000 barrels per day. The nation's crude output has climbed to 9.1 million barrels a day, the most since February past year, according to the Energy Information Administration.

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Libya's National Oil Corporation (NOC) said it was confident of regaining control of two key oil ports, Es Sider and Ras Lanuf, which have a combined capacity to export 600,000 bpd. "So, unless oil demand growth rebounds to record levels in 2017, oil prices could head for another substantial fall", said Leonardo Maugeri, senior fellow at the Harvard Kennedy School's Belfer Centre for Science and International Affairs. Russian Federation slashed oil production by 161,000 barrels per day as of March 19 against October 2016 taken as a base level within the framework of the agreement with OPEC, a source familiar with official statistics on oil production in Russian Federation told TASS on Monday. "OPEC can easily shoot itself in the foot if the cuts lift the long-dated WTI price, which will drive US shale yet higher and stronger". While the number of active rigs is still well below the highs of a few years ago, the rig count has already doubled compared to last year's low. The report indicated that during the week before inventories of crude oil in the US declined by 237,000 barrels, which goes against the normal trend of increases in crude inventories during this time of year. For that month, global oil supplies were higher to the tune of 0.26 million barrels per day but a lot of this appears to have been seasonal in nature. That said, it also doesn't factor in the risk of shale production continuing to grow.

Benchmark palm oil futures for June delivery on the Bursa Malaysia Derivatives Exchange were down 0.3 percent at 2,795 ringgit ($630.71) a tonne at the midday break.

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