Oil Selloff Continues on Strong US Supply

A recovery in US oil output may deter OPEC and non-OPEC producers from extending production cuts beyond June and might lead to a new price war, Russia’s top oil major said on Monday.

Late last year, the Organization of the Petroleum Exporting Countries signed a deal with bevy of heavyweight producers such as Russian Federation to cut their collective production in the first half the year.

Crude oil futures were little changed Tuesday as markets braced for the Federal Reserve interest rate decision and USA oil inventories data.

U.S. West Texas Intermediate crude (WTI) declined 45 cents, or 0.9 percent, to $48.04 a barrel, also the lowest since November 30.

The continuing weakness saw United States crude oil futures briefly dip under $US48 a barrel before struggling back above that level.

Front-month WTI futures now trade down 0.68% at $48.16 a barrel, having dipped below the $48 level for the first time since late November earlier in the session.

Meanwhile, Kuwait’s Oil Minister Essam al-Marzouk reportedly has said the country supports extending the current OPEC oil production cut beyond its June deadline. The kingdom, which had curbed supplies more than it needed in January to lead the way in an accord to re-balance world markets, told OPEC it boosted production by 263,300 bpd last month, a figure that jarred with the group’s own estimate that Saudi production fell further. That rose for a 9th week by 8 to 617 rigs last week, almost 60% above the level of a year ago.

While Saudi Arabia remained the biggest oil supplier to India, ship tracking data and a report compiled by Thomson Reuters Oil Research and Forecasts showed imports from Iran rose to 647,000 barrels per day in February.

Exxon Mobil chairman/CEO Darren Woods said that part of the reason the unconventional drilling in the U.S.is working so efficiently is because the industry is driven by free markets and economics, whereas the OPEC drillers rely on low costs.

So, we have OPEC talking up a major production cut deal, and also trumpeting its unprecedented rate of compliance.

So while OPEC has reduced its production, the USA oil inventory continues to hit new records every week.

According to energy services company, Baker Hughes, US Drillers added eight oil rigs in the week to March 10, bringing the total count up to 617, versus 386 rigs a year ago. But the cuts were not all that they seemed to be for two reasons: OPEC cut from record highs and countries exempted from the deal ramped up oil production in the fourth quarter of 2016, offsetting much of the reductions.

But why did prices breakdown instead of skyrocketing higher given OPEC’s production cuts?