Supply glut woes jump; oil markets slump: Angel Commodities Broking

Mr.Prathamesh Mallya (Chief Analyst- Non-Agri Commodities & Currencies, Angel Commodities Broking):

“Oil market bears came out in the open on Tuesday with NYMEX Crude oil prices slumping to $42.75/bbl, the lowest since September’16 hit by a double whammy of recovery in OPEC output in May’17 coupled with rising US production. Brent prices plunged to $45.42/bbl, levels last seen in Nov'16 while MCX oil prices were no better either at ten month lows of Rs.2791/bbl.

OPEC output jumped 336,000 barrels per day to over 32.14 million barrels in May’17 despite 106 percent output cut compliance last month. This was a result of production increases from Iraq, Libya and Nigeria - both of which are exempt from the production reduction agreement. In light of the same global investors have become increasingly skeptical of the effectiveness of extension of output cut agreement through March 2018.

Rising US crude oil production too has been a major cause of concern, all thanks to second wave of shale oil revolution. Rig counts there have been on the rise for 22 consecutive weeks ending June 16. Besides, EIA expects U.S. crude oil production to increase through 2018, averaging 9.3 million b/d in 2017 and 10.0 million b/d in 2018.

Overall, crude prices, currently at multi month lows, will have to bear the brunt of supply glut in the near term although sharp decline in prices going forward could prompt the US to slow down production, thereby providing a cushion.”