Crude prices declined this week even after the Organization of Petroleum Exporting Countries (OPEC) pledged to extend its six-month long production cuts to March 2018. West Texas Intermediate traded stubbornly below $50 per barrel as the number of oil rigs operating in the U.S. stood at a two-year high.
Oil rigs rose by two to 722, advancing for the 19th consecutive week to its highest since April 2015, according to data from energy services firm Baker Hughes (BHI), which tracked the seven-day period ended May 26. The Energy Information Administration said Wednesday crude stockpiles dropped by 4.4 million barrels over a week that ended on May 19 — that compares with expectations for a decrease of 2.4 million barrels in a Reuters’ poll of analysts.
Crude has remained soft – despite a rebound on Friday – as the 14-member cartel failed to propose a clear exit strategy beyond managing the Q1, 2018, seasonal build at a meeting in Vienna Thursday. It was also lower because output cuts were not increased beyond the current reduction of 1.8 million barrels per day, as well as potential caps on Libyan and Nigerian output were not lifted, which is presently excluded from cuts.
“A nine-month extension would normalize OECD inventories by early 2018,” Goldman Sachs said in a report. “But, we see risks for a renewed surplus later next year if OPEC and Russia’s production rises to their expanding capacity and shale grows at an unbridled rate.”