Oil prices were steady on Tuesday with Brent crude future trading at $55.67 around midday while U.S. West Texas Intermediate crude futures were at $50.24.
This was despite Iraq’s oil minister saying earlier today that his country’s oil production was currently at 4.32 million barrels per day (bpd), down from almost 4.5 million bpd in May and June, Reuters noted, and other data showing that Saudi Arabia’s crude exports fell to 6.693 million bpd in July, down from 6.889 million bpd in June.
Despite major Middle Eastern oil producers insisting that they are reducing supplies in a bid to support oil prices, an excess supply is still expected to put a dampener on the market.
This comes despite OPEC’s decision in January to cut oil production by 1.8 million bpd at least until March 2018, a cut made in conjunction with along with major oil producer Russia. The move is a bid to support oil prices which have fallen dramatically from over $110 a barrel in 2014, mainly due to a glut in supply and a failure of demand to keep pace, particularly with U.S. shale oil producers adding to global oil supplies.
However, Harry Tchilinguirian, head of commodities strategy at BNP Paribas, said in a note Monday that “the oil market will continue to struggle with excess supply” and for WTI to average $49/bbl in 2017 and $45/bbl in 2018 and Brent to average $51/bbl in 2017 and $48/bbl in 2018.
“While demand seasonality in the summer worked to reinforce the impact of supply restraint by producers, the autumn will work against OPEC’s efforts as oil product demand and refinery crude throughputs decline.”
Warning that OPEC compliance with pledged supply reductions fell to its lowest level during June-July since supply cuts were initiated in January, albeit recovering somewhat in August, Tchilinguirian added that “OPEC’s efforts to reduce excess oil supply on the market are challenged by non-OPEC supply growth this year and next, mainly driven by U.S. shale oil.”
BNP Paribas still expected global oil demand to ease year-on-year, from an average of 1.5 mb/d in 2017 to 1.4 mb/d in 2018.
“All-in-all, our oil balance and OPEC crude production assumption point to a modest 100 kb/d implied decline in global oil inventories in 2017 and a 600 kb/d increase in 2018.” Consequently, the commodity strategist said oil prices forecasts remain at the lower end of the consensus range.