Oil prices plunge to hit the lowest level for 2017

Energy - Vinay Mishra - Mar 10,2017

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oil prices plunge to hit the lowest level for 2017

OPEC and Russia’s effort to end the chronic oversupply and to increase oil prices negated by increasing U.S. productions in Permian, North Dakota and Oklahoma regions.

Oil prices have dropped by 7% in the past two days, going under $50 for the first time since mid-December 2016. After the OPEC deal of production cut, oil prices was stable for some time. But rising US stockpiles forced companies to go out of the deal for ending the longstanding glut.

In the US, West Texas Intermediate (WTI) crude fell 6 percent to $48.79 a barrel. The global Brent benchmark was down by 7 per cent to $51.89 a barrel, its lowest point since early December.

The sudden decline in prices was after the report from the EIA, which showed that crude oil inventories in the US increased by 8.2 million barrels last week. With total commercial stock increasing to a record high of 528.4 million barrels. This also marked the ninth consecutive week of increasing stockpile.

In November 2016, the Organization of Petroleum Exporting Countries (OPEC) and other oil-producing countries including Russia agreed to lower their output for 2017 to put an end to the prolonged oversupply and to increase oil prices. This agreement includes cutting output by around 1.8 million barrels a day, equivalent to around 2 per cent of world’s total production.

But in the U.S. drilling and stockpiles of oil continued to rise and with producers planning to further increase crude production in North Dakota, Oklahoma and Permian regions.

If the matter remained unchanged, then this could be the worst week for oil prices since the deal. We could see further decrease in oil prices as weak OPEC nations like Iraq, Venezuela and Angola could break the deal and start exporting more oil to compensate the diminishing revenues.

On March 26, Kuwait will host a meeting of OPEC and non-OPEC countries to review compliance with the production cuts.