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Explainers - June 13, 2018

Oil drops in the middle of rising US supply

Oil prices fell on Wednesday, hit by increased supplies in the United States and the expectation that the OPEC producer cartel could release the voluntary production cuts.

Brent crude oil declined 35c to 75.53 dollars per barrel around 7:30 GMT. US light crude was 40 cents lower at $ 65.96.

OPEC and some non-OPEC producers, including Russia, have started to suspend production in 2017 to reduce excess global supply and prices have increased by around 60% in the past year.

But OPEC said on Tuesday that the outlook for the oil market in the second half of this year was highly uncertain, and warned of the risks of declining demand.

Opec will meet on 22 June in Vienna, Austria to discuss future production policy.

“The prospect of easing supply curbs from Opec-led producers continues to be reflected in oil’s overall depressed price,” said Lukman Otunuga, an analyst at futures brokerage FXTM.

Dutch bank ING, however, said some Opec members would “struggle to push production back to October 2016 levels”.

In the United States, the American Petroleum Institute (API) said on Tuesday that crude oil inventories rose 830,000 barrels during the week of June 8 to 433.7 million.

The rise in US inventories is partly due to soaring crude oil production in the United States, which has jumped nearly a third in the last two years to a record 10.8 million barrels per day.

With a production of more than 11 million barrels a day in June in Russia and a Saudi production of more than 10 million barrels a day, the top three producers are growing.

“With rising production from US shale adding to oil’s woes and reviving oversupply concerns, further downside could be a possibility in the short to medium term,” Otunga said.

Official US production and inventory data are due to be published on Wednesday by the Energy Information Administration (EIA).

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