Global oil prices surrendered earlier gains in Asia on Wednesday, on deepening oversupply concerns after the U.S. energy department again raised oil production estimates.
OPEC's efforts to tighten the market could be undermined by U.S. production, which the EIA said could hit a record 10 million bpd next year, up from 9.3 million bpd now. That would nearly match the output level of top exporter Saudi Arabia.
OPEC’s own rising production also weighed on prices. Despite the reported high level of compliance to the cut deal, the cartel’s output likely rose by 270,000 barrels a day in May to 32.12 million, driven by the faster-than-expected rebound in Nigeria and Libya, two OPEC nations exempt from the pact, said S&P Global Platts.
More than five months into the cut deal, much of the benefits from the cuts have flowed to the U.S., where producers take advantage of the higher prices to expand their drilling operations. U.S. production has stayed above the 9.3 million barrels a day level for four weeks.
The Energy Information Administration on Tuesday said it expects American shale producers to crank out 9.3 million barrels a day in 2017, a slight increase from its projections in May. It expects 2018 daily output to hit 10 million barrels, exceeding the previous record of 9.6 million barrels a day in 1970.
World fuel production and consumption is roughly in balance, at almost 98 million bpd, although inventories remain bloated, the U.S. Energy Information Administration (EIA) said on Tuesday.
Crude futures for delivery in July traded at $48.13 a barrel, down 6 cents in the market, August Brent crude on London’s ICE Futures exchange dipped 4 cents to $50.09 a barrel.
In the near-term, however, the market was supported by escalating tensions in the Middle East and by signs of a gradual drawdown of bloated U.S. fuel inventories.
A campaign by leading Arab nations, including Saudi Arabia, Egypt and the United Arab Emirates, to isolate Qatar is disrupting trade, including oil.