Prices fall on fears of USA drillers counteracting OPEC cuts

The market's volatility surged the most since before the 2014 price crash started.

"The market is looking at lower demand, while supply is to see a marginal increase", said a futures trader from Kuala Lumpur. The producer group is aiming to revamp the market by eroding a crude inventory surplus that's depressed prices since 2014.

The first issue that has dragged oil prices down is that USA inventories have continued to rise year to date. So at the moment the effect of the cuts looks much more short-lived than expected, and the fall in prices last week may indicate a kind of turning point.

Futures briefly pared losses after Reuters reported that Opec producers increasingly favour extending production cuts into the second half of the year. The IEA also expects non-Opec output to rise 0.4 mbpd to 58.1 mbpd in 2017. 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. 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.

OPEC member Saudi Arabia landed itself in an untenable situation. The Libyan government regained control of two key oil ports, Es Sider and Ras Lanuf, which can export up to 600,000 barrels per day.

The data from the U.S. thwarts the Organization of the Petroleum Exporting Countries (OPEC) deal with Russian Federation and other producers to cut production to prop up prices.

OPEC in November agreed to manage collective production, leaving the United States in a unique position to influence crude oil prices. As of March 17, 2017, crude oil prices were 9.4% below their high. In the week to March 10, the total rig count increased to 617, compared to 386 a year ago. The low today reached $47.84. That is why a weaker dollar, which is typically supportive of crude-oil prices, isn't helping investor sentiment, he said.

U.S. oil output has risen to over 9.1 million bpd from below 8.5 million bpd in June past year.

US Crude Oil Field Production (4-Week Average), data by YCharts.

Futures lost as much as 1.9 percent in NY after gaining 0.6 percent last week.

What happens next is uncertain. Nevertheless, some analysts are hoping that the full outcome of OPEC's production cuts haven't been seen yet and that despite the increase in US production OPEC's cuts will show effect in April, as demand from refineries increases.

At that time, member countries will report the progress of the cuts. Iraq and Angola have also suggested they would be open to an extension.

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