Oil dips on doubts over OPEC’s ability to reduce inventories

Oil eased on Tuesday, paring earlier gains, as doubts about the Organization of the Petroleum Exporting Countries’ (OPEC) ability to reduce global crude inventories put the price on track for its sixth fall in seven days.
Brent crude was down 3 cents at $51.57 a barrel by 1411 GMT, down from a session high at $51.92, while US crude futures were down 13 cents at $49.10 a barrel.
Brent has fallen by almost 10 percent since late 2016, despite efforts led by OPEC and Russia to cut output by 1.8 million barrels per day (bpd) in the first half of 2017.
With oil supplies still around record highs, Stephen Schork of the Schork report said on Tuesday: “OPEC has failed miserably in its endeavor to balance the oil market.”
JPMorgan said in a market note “it is evident that ... crude markets are still struggling to clear (oversupply).” The bank said it was closing its “August Brent long position at a loss.”
To reduce the supply overhang, JPMorgan said OPEC “will be forced to renew, and possibly deepen the agreement if they wish to keep prices much above $50 per barrel.”
Russia said at the weekend its oil output could climb to the highest rate in 30 years if OPEC and non-OPEC producers do not extend their supply reduction deal beyond June 30.
Extreme weakness in physical crude, where prices in the North Sea market have fallen to their lowest this year, is also acting as a drag on futures.
But one analyst said crude demand could pick up and the long-awaited draw in global inventories could start to show with refinery maintenance around Europe and Russia set to peak in May at an estimated 1.5 million bpd.
“If you look at the last six weeks, when you include the US, Europe, Singapore and floating storage, (inventories) have been going down on average by 8 million barrels a week,” SEB commodities strategist Bjarne Schieldrop said.
If that pace continued, he said it would equate to a draw down of 250 million to 300 million barrels by the end of 2017.
“With refineries out, you have a lot of crude oil sloshing around, creating weakness in the spot price,” he said. “We still have the OPEC meeting ahead of us on May 25 and it is always uncertain. But it does not make sense to sell down to $45 ahead of that.”

Source: Arab News