Oil eases on oversupply, but Mideast tension and falling US stocks support

A man fills up his car at a petrol station in Rome

"This became particularly obvious recently, when OPEC and its partners chose to extend their production cut agreement for another nine months, and contrary to expectations this failed to improve prices".

Oil markets have been, for the last couple of weeks, cautious and slow to react to the positive news of crude oil inventory draws.

"For the OPEC-led deal to succeed, we need to see a greater export focus and greater compliance amongst accord members", said Vivek Dhar, a commodities strategist at Commonwealth Bank of Australia.

"The relentless increase in USA oil production appears to have the market anxious that the OPEC cuts will be completely nullified by the increased US production", William O'Loughlin, analyst at Australia's Rivkin Securities, wrote in a note to clients on Tuesday.

That's despite a supply quota plan from OPEC that is meant to re-balance oil markets.

The Organization of the Petroleum Exporting Countries (OPEC) members' crude output rose 270,000 b/d to 32.12 MMb/d in May compared to April, according to an S&P Global Platts. At least two tankers left the Forcados terminal last month, the first loadings since late October.

The EIA data also showed an increase in imports and a drop in exports. Prices below moving averages indicate bearish sentiment for oil prices.

"“It's about total stocks, crude and products, because that's what the world wants to see, that's what OPEC wants to see", Michael Wittner, head of commodities research at Societe Generale SA in NY, said by telephone. Overall exports fell to 557,000 bbl/d from a record 1.3 million bbl/d the week previous. The Kingdom was allocated a quota of 10.058 million b/d under the agreement. The news at first benefited Brent crude prices as much as by 1.6%, but gradually the market digested another impact of the dispute. He has also said the coalition will consider the need for deeper output cuts in July, when the five-country monitoring committee meets in Russian Federation.

USA stockpiles of crude oil and gasoline rose last week, reversing recent declines and weighing on oil prices. EIA will include Equatorial Guinea in OPEC starting in the July 2017 STEO. The increase was driven by surging production in Libya and Nigeria, both of which are exempt from the cartel's agreed production cuts.

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