Oil prices pared early gains on Thursday despite US industry data showing a big drop in crude stocks last week, with investors sceptical that OPEC-led cuts will be enough to rebalance an oversupplied market. Production fell about 1 million barrels per day over the next year and a half as oil prices collapsed. This may be cause for optimism that at least part of the inventory will become gasoline and be used up during the summer, but previous year, the driving season failed to take care of excess crude oil inventories and considerably contributed to a general feeling of gloominess among oil traders. Brent crude futures were up 1.1 per cent to us$51.31 a barrel.
The surge in production from the exempt nations threatens to blunt the impact of the accord.
US West Texas Intermediate crude futures dropped 26 US cents, or 0.54%, to US$48.1 per barrel. It estimated that large operators such as Anadarko Petroleum Corp. and Marathon Oil Corp. are expected to increase output by 400,000 barrels a day, with smaller independent producers projected to add a further 100,000 barrels.
The deal would have required the U.S.to reduce polluting emissions by more than a quarter below 2005 levels by 2025, potentially limiting the growth of high-emissions industries like oil and gas production.
The bad news is USA crude production rose to 9.34 million bpd last week, up almost 500,000 bpd from a year ago. The African producer now cranks out around 830,000 barrels a day, a huge jump compared with the sub-300,000 barrels a day seen in last July.
Surging U.S. production has put a strain on OPEC members' efforts to curb production cuts in a bid to drain a global crude supply overhang and to prop up prices.
On Friday, the head of Russia's state-controlled Rosneft oil giant said that that a rise in shale oil output in the USA would likely offset the effect from the OPEC and Russian production cuts. Speculators fled bearish positions for a second week.
On Friday, Igor Sechin, chief of Russia's largest oil producer, Rosneft, said US oil producers could add up to 1.5 million bpd to world oil output next year.
Sechin, a close ally of President Vladimir Putin, expects shale oil output to increase by about 1.5 MMbpd in 2018, close to the entire cut targeted by the Organization of Petroleum Exporting Countries and its allies including Russian Federation.
Analysts said the group is at risk of losing further market share to U.S. shale oil producers, which could cause compliance with the deal to slip in the second half of the year.