OPEC compliance slumps to 78%, lowest rate in 2017

Energy Snapshot What Happened on July 3–7 2017

That was in part on gains by Libya and Nigeria, which aren't subject to the OPEC-led production-cut agreement that's been in place this year. West Texas Intermediate (WTI) crude oil prices are expected to be $2/b lower than Brent prices in 2017 and 2018.

Differentials for Urals, a sour grade exported from the Baltics and the Black Sea, are trading at their highest level versus dated Brent in two years, while light grades nearby such as CPC Blend and Azeri are at two-year lows.

Limiting the upside is rising USA production, steady growth in producing oil rigs and rising production in Libya and Nigeria.

Finally, OPEC forecast the world will need 32.20 million bpd of crude from its members in 2018, down 60,000 bpd from this year. The oil cartel is composed of sovereign nation members, but shale oil producers are American private companies, making it harder for OPEC to have intergovernmental contact with the USA shale sector.

The rebalancing of global oil markets has become less certain, with OPEC production rising and little evidence that bloated stockpiles are shrinking as expected, the International Energy Agency said.

"U.S. inventory numbers confirmed that a drawdown (of excess inventories) was in train", ANZ bank said.

While the oil production benchmark in the budget was 2.2 million barrels per day (mbpd), Nigeria is now producing about 1.7mbpd of oil without condensate, and was still within the price band of $42.50 per barrel which the budget has.

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Oil futures rose, maintaining some gains from earlier in the day, as a report showing hefty drawdowns in US crude inventories was offset by data pointing to lackluster gasoline demand.

By the IEA's estimate, it's not just three members undermining OPEC's efforts.

However, watchdog also highlighted a stronger outlook for global oil demand in its monthly report, as consumption of the product has risen in Germany and the United States in recent months.

Producers are now set to meet in Saint Petersburg in Russian Federation on July 24 to review the output situation.

OPEC crude oil production rose by 340,000 barrels a day to 39.48 million barrels in June. If Libya and Nigeria do not experience any more disruptions due to violence or political instability, it is very likely that these countries will have no choice but to comply with the production cut. As of 2016, the USA average daily export rate was just 520,000 bpd, although in May, the average daily was 1.02 million barrels.

As early as 2016, Mercuria, one of the biggest energy traders, acquired a crude supply and marketing business that was the key to more than 150 new shale producers all across the US, Bloomberg sources reported. "We all agreed that we should continue these meetings", he added.

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