Despite optimism experienced in previous trading sessions regarding the OPEC supply cuts ironed out in the November oil production deal last year, fears of a U.S. shale production increase combined with an apparent rise is scepticism regarding OPEC’s capacity to maintain the promised production cuts have pushed oil lower.
Brent crude oil, the global benchmark had slipped by 2.65% at 13:00 EST, to $55.71/barrel as analysts consider their previously bullish bets on the commodity in the wake of news of apparent continuation of Iranian and Iraqi oil production, despite agreeing to comply to proposed production cuts.
As was the fear with U.S. shale producers, it appears Iranian oil producers are cashing in on the recent price inflation stimulated by the OPEC production deal. With Iranian floating storage reduced considerably from 32.5 million barrels in September, to 17 million, as referenced from ClipperData, it appears the nation has adopted an advantageous stance regarding the increased oil prices.
Concern has also increased regarding the compliance of OPEC rules by Iraq, who, like Iran, do not appear to be reducing their production of the commodity, thus leading many analysts to consider the nation as adopting a analogously advantageous stance – orientated about cashing in on higher prices – an increasingly likely probability.
Adding to the concern that the oil market may not be as close to a more balanced state as many analysts had predicted, is the increase in U.S. shale activity. The possibility of U.S. shale producers taking advantage of the higher prices had been a concern for many bullish traders for some time. Such a concern may be materialising, with apparent increases in U.S. rig count and shale activity.
The oil market had enjoyed a period of relatively consistent price increase subsequent to the signing of the OPEC production deal, of which, via the incorporation of non-OPEC members, primarily Russia, as well as the de facto leader of the cartel, Saudi Arabia, agreeing to take the largest production cut, had been designed to shave 2% of global oil supply in an effort to restore the saturated market back to a state of stability, and perhaps even deficit, had the supply cuts been enhanced. Such optimism however, appears to be fading.
Chart from: https://www.dailyfx.com/crude-oil
Showing daily fluctuations in the price of Brent crude oil, the global oil benchmark since April 2016.