Crude Oil prices continue to show weakness even though there are some bullish pieces of data emerging. The EIA reported a surprisingly strong drawdown in crude oil inventories, a drop off of 6.43 million barrels. However, weekly U.S. oil production continues to climb. Also, Libyan oil production broke new highs for the year. Oil might trade between $45 and $50 per barrel for quite a while, a range that is “the path of least resistance," Bill O’Grady, chief market strategist at Confluence Investment Management, told Bloomberg in an interview. "You stay in that range until you get some kind of clear and convincing evidence." Oil prices also sank on news that the U.S. withdrew from the Paris Climate accord (more below), raising fears of more unbridled drilling.
OPEC saw its collective output jump in May because of rising supply from Libya and Nigeria, two countries that are exempt from the production cut deal. The uptick in output was the first monthly increase across OPEC for the year. Both countries have already stated their objective of dramatically ramping up production in the second half of this year if they can maintain security.
OPEC faces conundrum: prices or market share. Robin Mills, a Middle-East based oil analyst, wrote in Bloomberg View that OPEC must choose between fighting for market share by raising production, or stabilizing prices by maintaining cuts. They can’t have both, despite attempts by the cartel to keep U.S. shale out of the market while also rescuing prices from falling. Unless OPEC chooses one course of action, it could face long-term attrition from lost market share and less-than-satisfying revenues.
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