Crude prices sag amid doubts over OPEC's influence
Oil market facing growing supply, sluggish demand
TOKYO -- Crude oil prices have dropped this week in response to several reports that show rising output and lackluster demand, with market players questioning the effectiveness of OPEC's production cuts.
The spot price of Dubai crude, the benchmark for Asia, fell 2.8% to a six-month low of about $45.70 a barrel on Thursday. This followed a plunge in New York futures the previous day, with West Texas Intermediate ending the session under the $45 mark.
The U.S. Energy Information Agency published a weekly report Wednesday showing gasoline inventories unexpectedly surged by 2.1 million barrels. Commercial crude oil inventories also fell less than projected, highlighting weak demand even as the U.S. enters its summer driving season, when many vacationers take to the roads.
For oil market players, "the fact that consumption remains sluggish at a time when demand should be growing creates a reason to sell," said Satoru Yoshida of the Rakuten Securities Economic Research Institute.
Attempts by oil producers to scale back output face uncertainty as well. In May, OPEC decided along with Russia and other non-members to extend production cuts that began in January until March 2018. The goal is to reduce crude inventories to their five-year average.
But a monthly oil market report issued Tuesday by OPEC revealed that Nigeria and Libya -- two members exempted from the cuts -- had ramped up production, leading to a significant increase in the cartel's overall May output.
"The rebalancing of the market is underway, but at a slower pace," the report said, acknowledging it will take more time to tighten the supply-demand balance.
Then on Wednesday, the International Energy Agency said in a report that output growth among non-OPEC members such as the U.S. would outpace the increase in demand. This further dampened market expectations of a crude rally.
Shale oil production is expected to continue growing in the U.S. The number of operating rigs there has increased for 21 straight weeks, according to oil field services company Baker Hughes.
Faced with bearish data on both the supply and demand fronts, "the market is feeling out where the bottom might be," said Toshinori Ito of Ito Research and Advisory.