Oil Markets Undermine OPEC Supply Cuts

Oil prices experienced a drop on Tuesday after the possibility that the U.S. output might rise further undermined the ongoing OPEC-led production cuts which were meant to tighten the market.

Brent crude futures were down 0.35 percent or 22 cents at $62.94 per barrel by 0415 GMT, compared to their last close while the U.S. West Texas Intermediate (WTI) crude fell 14 cents or 0.25 percent at $56.62 per barrel.

The falls came after both crude benchmarks reached highs last week which were last seen in 2015, traders then said that the market had lost momentum after that, adding that they have begun to be cautious on betting on price rises that may happen further.

A strategist said that regarding the prices, they “are starting to look like a pause or pullback is needed.”

The statement came in part on the back of continuously rising U.S. oil output. The said output grew by more than 14 percent since the middle of 2016 to a record of 9.62 million barrels per day (bpd).

According to the U.S. government on Monday, U.S. shale production will increase for a 12th consecutive month by December, rising by 80,000 bpd.

“2018 Average oil prices will be broadly unchanged year-on-year and that the recent price recovery with Brent exceeding $60 per barrel may not be sustained,” said Fitch Ratings in relation to its 2018 oil outlook.

So far, Brent has averaged $54.5 per barrel for the year of 2017.

OPEC Sees Larger 2018 Oil Supply Deficit

On Monday, the Organization of the Petroleum Exporting Countries (OPEC) stated that it will be raising its forecast regarding demand for its oil in 2018, adding that the deal it has with other producers to cut output has been helping reduce excess oil in storage which could push the global market into a larger deficit by next year.

The organization also discussed in its monthly report that it had changed its guess of 2018 supply from non-OPEC producers, stating that oil use will grow faster than previously anticipated due to a stronger-than-expected world economy.

The world will be needing 33.42 million bpd of OPEC crude by next year, according to the organization. The recent change in its forecasts – now raising the estimated demand bpd by 360,000 – marks the fourth consecutive monthly increase in the projection from the first estimate made in July.

"The global economic growth dynamic has continued its broad-based and relatively strong momentum," OPEC stated. "The ongoing momentum could still provide some slight upside potential."

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