x Abu Dhabi, UAEWednesday 26 July 2017

Output of US crude adds to glut

Crude output in the United States is at its highest in 14 years, adding to inventories that are keeping oil prices in North America low and feeding into a global oversupply leading Gulf producers to adjust their export levels.

Crude output in the United States is at its highest in 14 years, adding to inventories that are keeping oil prices in North America low and feeding into a global oversupply leading Arabian Gulf producers to adjust their export levels.

Production rose above 6 million barrels per day (bdp) in the first three months of this year, according to the US Energy Information Administration (EIA).

"Strong growth in US crude-oil production since the fourth quarter of 2011 is due mainly to higher output from North Dakota, Texas and federal leases in the Gulf of Mexico, with total US production during the first quarter of this year topping 6 million barrels per day for the first time in 14 years," the EIA said.

In the final quarter of last year, the US produced 5.9 million bpd but the production increases were met with sluggish demand, as the US battles harsh economic times.

A lack of transport options from the US crude hub at Cushing, Oklahoma, has led to a supply glut there. A pipeline connecting the US Gulf coast to Cushing was reversed this month, but experts say the impact of unblocking this bottleneck has yet to be felt on inventory levels.

"Stocks in Cushing are still high, even with the opening of the pipeline," said Sammy Al Mehaid, an oil market analyst at the office of the Opec governor for Saudi Arabia. "The extra supply is adding bearish momentum on the US domestic market."

US crude inventories remain near heights last reached in 1990, EIA data shows.

The price of crude on the New York Mercantile Exchange (Nymex) has dropped from about US$98 to about $85 a barrel this year.

The Cushing bottleneck created a wide disparity between US and European prices, with the European benchmark Brent trading in the region of $100 a barrel.

Strong US production is adding to a global supply overhang that has pushed prices down in spite of the stand-off over Iran's nuclear programme that added a hefty risk premium to the price of a barrel of oil.

"Price is not giving you a true picture of supply and demand, it's still being highjacked by geopolitical uncertainties," said Mr Al Mehaid.

fneuhof@thenational.ae