Oil price falls to new 2017 low

Oil price falls to new 2017 low

A sustained fall in crude will test the resolve of Saudi Arabia to continue cutting production, well above its allotted limits because, after all its efforts, it is only losing market share and providing a boost to the U.S. shale oil industry.

Then in December, non-OPEC producers led by Russian Federation agreed to cut their own output to 558,000 bpd.

The deal between Opec and non-Opec producers, which was agreed late past year and aimed to curb production, appears to be having little effect on the glut at the moment, with three of the last four weeks showing substantial inventory increases.

The draw was mainly due to the drop in imports, particularly those from members of the Organization of the Petroleum Exporting Countries who are cutting production to comply with an agreement they signed with Russian Federation previous year.

Sentiment improved after the U.S. Energy Information Administration said in its weekly report that crude oil inventories declined by a surprising 237,000 barrels last week to 528.2 million barrels.

This comes at a time when US producers are eagerly taking advantage of rising prices to crank up production.

The 10.01 million bpd are still below Saudi Arabia's self-imposed quota of 10.058 million barrels daily under the OPEC agreement, but they are 263,300 bpd more than the country's January output-a fact that is not lost on the already excessively volatile market.

The de-facto leader of OPEC issued a rare statement Tuesday night, saying that it was "committed and determined to stabilizing the global oil market".

The oil price has seen a strong recovery from 2016 lows and is now close to 30 percent up from levels a year ago.

USA light crude settled 11 cents lower at $48.75 a barrel, but still above the three-month low hit on Tuesday. But figures provided by the Saudis to OPEC, showed the country had produced 10.011 million barrels in February, up from 9.748 million barrels a day a month earlier.

There were also mutterings about OPEC's own members breaking ranks over the new production targets, including kingpin Saudi Arabia, the world's biggest exporter of oil. "As long as OPEC stays on track and non-OPEC delivers on their agreed cuts the market will continue to balance", he said.

But U.S. crude inventory levels remain near record highs.

In January, the rise in USA inventories was enough to reverse the downward trend in stockpiles seen in the developed world (OECD) over the previous months. Iraq plans to increase output to 5 million barrels a day by the end of 2017, Oil Minister Jabbar Al-Luaibi said at a news conference in the southern city of Basra. Oil production rose for a fourth week to 9.1 million barrels a day.

Then, they were 48 million barrels higher at just over 3 billion barrels, with Europe stocks rising and the United States levels near a record.

The problem is that, despite the production cut, the world is awash in oil.