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Oil Prices Plummet as Global Supplies Weigh Crude Markets

May 31, 2017 at 16:47 by Andrew Moran

Oil futures are plunging midweek as concerns about global supplies are weighing the crude market. Investors are not confident that the upcoming US summer-driving season as well as Organization of the Petroleum Exporting Countries (OPEC)’s nine-month extension will do much to lower supplies.

July West Texas Intermediate (WTI) crude futures tumbled $1.23, or 2.56%, to $48.39 per barrel at 16:32 GMT on Wednesday on the New York Mercantile Exchange. US crude is poised to settle at its lowest level in two weeks. US crude prices are also on track to post a 3.6% drop for May, which is the third consecutive monthly loss.

Brent, the international benchmark for oil prices, is also plummeting in the middle of the trading week. July Brent crude futures fell $1.57, or 3.03%, to $50.27 a barrel on London’s ICE Futures exchange. Brent had dipped as much as 4% before paring some of its losses. Brent is also down about 4% in May.

Traders are concentrating on two major issues right now: the OPEC output freeze will not impact global stockpiles and producers may start to sway from the agreement over fears US will gain market share.

Last week, OPEC agreed to extend its production freeze of 1.8 million barrels per day (bpd) for another nine months – Libya and Nigeria are exempt from the cuts. When the arrangement was announced, oil prices decreased because investors had wanted deeper cuts. Experts say that US crude will need to stay below the $50 threshold in order for US producers to begin scaling back on their output. Some reports note that OPEC officials may extend the agreement beyond March 2018.

New government data suggest that US firms are not reducing their efforts. According to the Energy Information Administration (EIA), US production averaged 9.3 million bpd and oil drilling has gone up for 19 straight weeks. Meanwhile, analysts surveyed by S&P Global Platts project that the EIA will report a drop of 3.2 million barrels in crude oil stockpiles for the week ending May 26.

Analysts warn that the summer-driving season in the US will barely affect global stockpiles.

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