Oil prices at 3-week low

Russian Economic Development Minister Maxim Oreshkin

Oil futures rose on Thursday from a three-week low touched the previous session, buoyed by expectations the United States could pull out of a global climate accord and by a report that showed US crude stockpiles had fallen more than expected.

A crude price in the $50s is the new reality for bosses of some of the world's largest producers as output caps from Organisation of Petroleum Exporting Countries (Opec) and its allies are balanced out by rising USA shale. "The market is telling us that unless we have significant inventory draws, the idea that we're going to have stronger prices doesn't look to be realistic".

Even though the Organization of the Petroleum Exporting Countries and major non-cartel heavyweights such as Russian Federation last week extended the ongoing production cuts, it remains to be seen if such caps can effectively chip away the glut of oil that has haunted prices for more than two years.

Oil prices fell to a three-week low on Wednesday on news that Libyan output was recovering from an oilfield technical issue, fuelling concerns that OPEC-led output cuts to reduce global inventories were being undermined by producers outside the deal. All this growth stems from shale drilling, as the more modest growth from Gulf of Mexico deepwater fields is offsetting declines from other U.S. conventional oilfields.

"Now that U.S. President Trump has announced that the U.S. will be withdrawing from the Paris Climate Agreement, it is expected that the U.S. will expand its oil production even more sharply", said analysts at German bank Commerzbank.

Crude inventories fell 6.4 million barrels in the week to May 26, far more than analysts' expectations for a decrease of 2.5 million barrels.

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"Why wouldn't they ramp up production when producers like the US have an open invite to do as they please?" he said.

US crude production rose almost 500,000 barrels per day (bpd) last week from year-earlier levels.

On Wednesday, a Reuters survey found output from the Organization of the Petroleum Exporting Countries (Opec) rose in May, the first monthly increase this year, as higher supply from two states exempt from a production-cutting deal, Nigeria and Libya, offset improved compliance with the accord by others.

OPEC crude output rose in May driven by gains from Libya and Nigeria who are excused from the agreement to cut production in an effort to recover oil prices. Speculators fled bearish positions for a second week.

"The lack of moderation in USA production is undercutting OPEC efforts to manage the market", said Michael McCarthy, a chief strategist at CMC Markets in Sydney.

On Friday, Igor Sechin, chief of Russia's largest oil producer, Rosneft, said USA oil producers could add up to 1.5 million bpd to world oil output next year.

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