The oil freefall continues as crude hits lowest since November

Prices fell sharply last week as investors anxious that swelling US crude supplies would hinder Organization of the Petroleum Exporting Countries’s (OPEC) efforts to restrict output and reduce a global glut.

As an aside, reports on Wednesday morning indicated that Saudi Arabia had supplied 90,000 barrels a day less oil to markets in February for a daily total of 9.9m barrels as the extra supplies reported the previous day were put into storage.

According to data from secondary resources, the OPEC remains in full compliance with the agreed production deal in February, after nearly full compliance with it in January.

The Saudis will continue to be interested in controlling the price of oil by trying to strike a balanced price that would allow them to increase oil revenues on the one hand, and curtail a significant rise in U.S. shale output on the other hand, Rosneft told Reuters.

But the country’s figures conflicted with figures OPEC got from other sources, which found Saudi output down 68,100 barrels a day to 9.8 million barrels per day. That’s roughly 500,000 barrels a day below the level OPEC pledged to cut production as part of a six month agreement with other major producers including Russian Federation.

As Business Insider reports, West Texas Intermediate crude, the US benchmark, fell to $47.43 per barrel as of Tuesday morning. In my book, The End of Doom, I cited his 2012 analysis Oil: The Next Revolution published when oil prices hovered around 0 per barrel in which he correctly predicted that they would drop steeply in the middle of current decade. Why?

West Texas Intermediate for April delivery rose as much as 76 cents to US$49.62 a barrel on the New York Mercantile Exchange and was at US$49.41 at 10.08am in London.

It should be noted, however, that even within the OPEC report, two sets of data regarding oil production exist alongside one another: one based on the official sources and one on secondary sources with the two often significantly different. USA inventories fell by 531,000 bbl last week, the industry-funded American Petroleum Institute was said to report.

Now, many USA shale oil companies have cut costs to the point where they are free cash flow positive with WTI around US$50 per barrel.

“Investor optimism over the effectiveness of the production adjustments encouraged record bets on a sustained rally”, it said, adding however that “growing U.S. output and stubbornly high stockpiles kept price gains in check and contained prices within a tight range”. “The risk is still towards the downside, but we are nowhere near the precipice”, PVM Oil Associates Tamas Varga said.

If U.S. oil production keeps growing, it will reduce OPEC’s incentive to maintain production cuts.

“It will be interesting to see how OPEC rhetoric will evolve with this price correction”. Demand growth, meanwhile, remains unchanged at 1.4 million barrels per day.

“This week’s stats were bullish across the board, with crude drawing for the first time this year and product stocks continuing their seasonal decline”, said analysts at Societe Generale. However, this relief was short-lived for the industry, as oil prices dropped more than 8% in the last 10 days. OPEC will gather on May 25 to decide on whether to extend the accord.