Oil prices struggle on doubts OPEC can rein in oversupply

Oil prices have been under pressure in recent weeks as concern over rising US shale output offset production cuts by OPEC and non-OPEC members. Data from the U.S. Energy Information Administration (EIA) this week showing growing gasoline stocks and shaky demand, despite the peak summer driving season, sent prices tumbling.

Looking at anticipated growth in global oil demand this year, OPEC reiterated its forecast of 1.27 million barrels per day (bpd).

Oil prices wallowed near their lowest levels in seven months early on Thursday, hurt by high global inventories and doubts over OPEC's ability to implement production cuts, according to Reuters.

With supplies plentiful, strong demand is needed to drive the market, but there are signs of a slowdown.

Fesharaki, an expert in the energy market and an academic warned that the world may witness a drastic fall in price of a barrel of Oil to $30 if the OPEC failed to cut production.

"Opec 2017 year-to-date exports are only down by 300,000 barrels per day from the October 2016 baseline", analysts at AB Bernstein said.

That means an entrenched market glut that has kept a firm lid on oil prices is likely to persist, despite disciplined efforts by most OPEC producers to rein in their own output. Importantly, the IEA expected the increase in non-OPEC supply next year to be higher than the growth in overall global demand.

"The outlook for oil hinges on the effectiveness of the OPEC cuts relative to the supply increases from U.S. shale", said an analyst at Australia's Rivkin Securities, William O'Loughlin. The IEA expects US crude production to grow by 780,000 barrels per day next year.

The EIA said USA crude inventories fell by 1.7 million barrels in the week ending June 9, against a market expectation of a 2.7 million drawdown and compared to yesterday's 2.7 million barrel increase reported by the American Petroleum Institute.

"Any build in United States commercial stocks gives us an indication of the uphill battle OPEC is facing", said Tamas Varga, an analyst at PVM Oil Associates Ltd.in London. The producer group said this week its output rose by 336,000 bpd in May to 32.14 million bpd.

The measures helped stabilise oil prices at the beginning of the year, with the worldwide benchmark Brent crude sticking above US$50 per barrel.

The EIA released its monthly report on drilling activity Monday showing that oil production from seven major US shale plays is projected to rise by 127,000 barrels a day to 5.475 million barrels a day in July from June.



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