The fall in oil prices come after bullish news on Libya oil production after it was reported that Libya’s Oil production currently stands at 827,000 barrels per day. Additionally, US output has risen to more than 9.3 million barrels per day further stemming fears of a drop in oil prices.
U.S. West Texas Intermediate crude futures were down 2.7 percent, or $1.34, to trade at $48.32 on Wednesday. Global benchmark Brent crude futures dropped 3 percent, or $1.53 to trade at $50.31 during the same duration. This was after previously dropping 4 percent to trade below $50.
However, despite a weaker than expected Private Manufacturing Index reading, Asia crude prices rose by roughly 1 percent. Crude futures for July delivery rose by 0.99 percent on the New York mercantile Exchange, settling at $48.80 a barrel. Brent also recorded positive gains after gaining 0.91 percent to settle at $51.22 a barrel on the London intercontinental Exchange.
According to the American Petroleum Institute, distillates dropped 124,000 barrels by the end of last week while Gasoline supplies rose by 1.726 barrels. In addition, U.S crude oil stocks fell 8.670 million barrels during the same period of time. Interestingly, May forecasts initially predicted a drop of 1.091 million barrels, 2.517 million barrels, 755,000 barrels for Gasoline stocks, crude oil inventory and distillates respectively.
Oklahama oil hub supplies also dipped by 753,000 barrels.
Crude futures continue to perform dismally, pledges to reduce supply glut notwithstanding. Even after assurances from Russia and Saudi Arabia to tackle the supply glut, oil prices fell by more than 2% on Wednesday, 31st May. This is an enough testament that investors are worried of actions likely to be taken by oil producers who are not part of the global pact aimed at reducing oil inventories. Investors are concerned that the oil producers will continue ramping up production, a move that will undermine OPEC’s position in curbing the supply glut.
Khalid al-Falih, Saudi Arabia Energy minister, at a meeting with Russian Energy minister Alexander Novak on Wednesday said that “more needed to be done to draw inventories towards the five-year average”. Novak reiterated that a new framework to ease cooperation between non-OPEC and OPEC member was imperative even after the Vienna agreements Expiry.
OPEC members and allies agreed to reduce oil supplies by 1.8M bpd (Barrels per day) until March 2018, the same production cuts agreed in November. The initial agreement was due to expire on June. However, Libya and Nigeria are exempted from the cuts.
Oil forecasts for this year were also affected with Goldman Sachs (NYSE: GS) leading the way, with forecasts of $55.29 per barrel for Brent, opposed to the previous $58.76 a barrel forecast. Goldman Sachs also lowered its forecasts for WTI Crude from $54.80 to $52.92.
On other news, Ciaxin Manufacturing PMI (China) for may slipped into contraction and marked an extensive 11-month low, where it came in at 49.6 missing the previous level by 0.5. According to director of macroeconomic analysis at CEBM Group, Zhengsheng Zhong, “China’s manufacturing sector has come under greater pressure in May and the economy is clearly on a downward trajectory”. In May, demand slumped as total orders faltered to 50.3, the lowest point in 11 months, from the April’s high of 51.0.The expansion rate of new export orders also suffered a setback, with the report only showing marginal growth.
Official China’s manufacturing PMI for May was reported at 51.2, a marginal improvement from the 51.0 level seen, and steady with April’s 51.2. The non-manufacturing PMI however recorded notable improvements after it rose by 0.5 to come in at 54.5.
Usually, any figure above 50 is used to denote expansion.