02 June, 2017
November's deal between OPEC and non-OPEC members like Russian Federation has been slow to take hold, as many nations sold inventory out of storage before truly cutting exports.
Birch cited continuing oversupply and only modest consumption growth. For Brent crude LCON7, -0.52% it cut the forecast to $55.39 a barrel, from $56.76 for 2017, and left the 2018 forecast at $58.
USA crude production has also continued to increase, rising to 9.34 million bpd, up almost 500,000 bpd from a year-ago.
The figures are the weakest projections this year, with forecasts falling slightly each month since the start of 2017.
The Organization of the Petroleum Exporting Countries and other oil producers, including Russian Federation, agreed last week to maintain output cuts of about 1.8 million barrels a day for nine months longer than originally planned. The initial six-month deal had been due to end on June 30.
Still, global inventory levels have a ways to go to reach OPEC's five-year average target. "We do expect prices eventually to gain some upwards momentum because of excess demand, but in the short term market sentiment remains bearish", the bank said.Gasoline demand during the USA summer driving season may support crude prices, analysts said. Despite OPEC efforts to reduce global supply, US crude oil production jumped by nearly 500,000 barrels per day last week, in comparison to year earlier levels.
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. "Why wouldn't they ramp up production when producers like the USA have an open invite to do as they please?"
Apart from booming shale output, supply recovery in Nigeria and Libya, the two OPEC members exempt from the deal to cut output, pose additional risks for crude markets, analysts said.
"The worry is that you have rising output in the USA and that's going to offset cuts", said Gene McGillian, manager of market research at Tradition Energy in Stamford, Conn.
"The market is now in the hands of how market participants interpret the weekly and monthly fundamental snapshots with all eyes focused on total global oil inventory levels", said Dominick Chirichella, senior partner at the Energy Management Institute in New York.Chirichella said the oil market is looking for "a sustained inventory destocking pattern that will send global supply and demand balances back to normal historical levels".
"Growing demand will be the main factor draining the global oil surplus, but generally at a slower pace than perceived", said Norbert Ruecker, head of macro and commodity research at Julius Baer.
