Higher US crude output to cap oil prices through 2018

The price of Brent crude fell 10% to as low as $46.64 a barrel last week, its lowest level since November as traders became impatient with OPEC's attempts to force a return to higher oil prices.

OPEC along with other key producers have agreed to reduce oil production by 1.8 million barrels a day from the usual output.

Higher crude output from the United States should limit any upside to global oil prices through the end of 2018, the U.S. government said on Tuesday, ahead of a meeting of major oil producers later this month to discuss extending supply cuts. Higher output in non-Opec countries, particularly the United States, Canada and Brazil, has offset Opec's deal reached a year ago to cut production and kept pressure on oil prices. "With multiple leading indicators showing that [the] supply and demand balance is in deficit, the market is moving towards rebalancing".

It expects total output for 2018 to rise to almost 10 million bpd, with most of that coming from the increase to the 2017 forecasts. Opec's dilemma now is that if oil prices go above US$60 per barrel, demand will weaken and new supplies will appear.

However, many analysts only see an overbundance of talk from OPEC members, as opposed to action regarding stockpiles. Saudi Energy Minister Khalid al-Falih's statement that the oil producers will "do whatever it takes" to rebalance the markets failed to find any takers.

With hedge funds embarking on a fresh cycle of short selling in oil, OPEC ministers seem to have concluded it was no longer practical to wait another two weeks until their formal meeting on May 25. On the other hand, increased inventories also dented the sentiment.

Bank of America Merrill Lynch said the low oil prices were also due to a slowdown in demand."Oil demand growth this year is underwhelming, in part explaining why crude oil prices and refining margins have sold off sharply recently", it said.

The selling pressure was ignited by fears that members of the Organization of the Petroleum Exporting Countries won't enlarge the size of their agreed production cuts when they meet on May 25, while non-cartel producers like Russian Federation aren't fully on board with continuing the curtailment.

The country is in its second year of recession, brought on by lower oil prices, which have slashed government revenues, weakened the currency and caused dollar shortages, frustrating businesses and households.

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