Crude oil prices dipped below $50 for the first time since December as a global glut persists despite production cuts by oil-exporting nations.
In November, the Organization of Petroleum Exporting Countries and other oil-producing nations agreed to cut back on production for much of 2017 to rein in a persistent oversupply worldwide and to boost prices. But rising stockpiles and continued drilling, particularly in the U.S., have raised concerns that OPEC’s efforts weren’t producing their intended effect.
West Texas Intermediate (WTI) oil sank 74 cents a barrel to $49.54 on Thursday morning.
Brent crude oil was down 73 cents a barrel to $52.38.
Domestic commercial crude supplies have risen nine straight weeks, reaching a new record level of 528.4 million barrels last week, according to the U.S. Energy Information Administration. That was an increase of 8.2 million barrels from a week earlier.
“The rising crude inventory levels in the US to new all-time highs has been the No. 1 reason why prices have been unable to move further higher after the OPEC had agreed with some non-OPEC members to limit production back in November,” wrote Fawad Razaqzada, market analyst at Forex.com, wrote in an investor note Thursday.
Domestic oil output is expected to increase to an average of 9.7 million barrels per day in 2018 – possibly breaking the U.S. total annual production record set back in 1970 – as more production in the Permian shale region of Texas and New Mexico are expected, according to the U.S. Energy Information Administration. Production in the Gulf of Mexico region also continues to rise.
“U.S. crude oil production is now expected to reach an all-time high in 2018, reflecting an increased forecast of domestic oil production growth,” Howard Gruenspecht, Acting Administrator of the EIA, wrote earlier this week in its March 2017 Short-Term Energy Outlook. “Rising crude oil production from non-OPEC countries, especially from the United States, is expected to curb upward pressure on oil prices for much of 2017.”
Still, Gruenspecht said he expected crude oil prices to remain “stable” over the coming months as the global oil market “is forecast to be largely in balance during 2017.”
“As a result of rising US oil production, OPEC is losing market share,” Razaqzada said. “But surely they won’t do a U-turn now. Their response may very well be a continuation of cooperation to limit their oil production, perhaps for a little longer than they had hoped. This should help keep a floor under oil prices.”
Also propping up prices is the fact that oil imports from OPEC nations continue to climb despite their coordination to cut production.
Imports from OPEC heavyweight Saudi Arabia “have yet to show any consistent signs of slowing down,” Geoffrey Craig, oil futures editor at S&P Global Platts, wrote in an investor note Thursday. Imports from Saudi Arabia rose 145,000 barrels a day last week to 1.5 million barrels. Imports from other OPEC members – Iraq, Kuwait and Ecuador – also increased, he said.
Despite the sell-off Thursday, Razaqzada said he expects oil prices to rebound to the $60 to $70 range by the end of the year. Demand typically rises in the summer. And analysts expect the effects of OPEC-led supply cuts, which went into effect Jan. 1, will materialize more noticeably later this year.