Oil in Global Economy Series: OPEC May deal compliance review

USA crude oil inventories fell last week, but an unexpected build in gasoline stocks and weak demand for the motor fuel offset market optimism over the crude drawdown, the Energy Information Administration said on Wednesday.

OPEC's oil production jumped in May, despite the exporter group agreeing last month to extend its six-month deal to cap output into 2018.

Crude prices drifted barely weaker oi Friday in Asia with investors eager to see if US shale drillers keep pouring on the heat for OPEC and allies or whether recent price falls bring a pause.

The watchdog said its first forecast for 2018 made "sobering reading for those producers looking to restrain supply".

The measures helped stabilise oil prices at the beginning of the year, with the Global benchmark Brent crude sticking above US$50 per barrel.

With supplies plentiful, strong demand is needed to drive the market, but there are signs of a slowdown.

The EIA expects United States oil production to continue towards 9.3 barrels per day in 2017 and almost 10.0 million barrels per day in 2018.

The U.S. Energy Information Administration report on oil inventories is due this week on Wednesday at 10:30 a.m. EDT. The West's energy watchdog expects growth in supply of 1.5 million bpd in 2018, driven by non-OPEC producers like Brazil, Canada and the United States; that level would exceed expected demand growth of 1.4 million bpd.

"The industry continues to turn a crude oil surplus into a gasoline and distillate product surplus", Andrew Lipow, president of Lipow Oil Associates in Houston said.

The American Petroleum Institute published industry reports on US energy levels, finding crude oil stockpiles increased by 2.8 million barrels and gasoline stockpiles increased by 1.8 million barrels last week. Crude output in the USA has shot up in the past year, rising more than 10 per cent to 9.3m bpd.

Libya and Nigeria, which are exempt from Opec's cuts, ramped up production in May, helping push the cartel's crude production to an average of 32.14m barrels per day (bpd), up from 31.8m bpd in April. That led to a downturn in crude oil prices as many market watchers were anticipating deeper cuts.

"Not only are [U.S.] producers increasing spending more sharply than initially thought, the pace and duration of new rig additions and drilling activity has exceeded all expectations", it added.

Canada's oil-sands will increase production rapidly in the next three years, ranking only behind US shale as the biggest contributor to global supply growth.

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