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13 July 2017, 01:32 | Frank Carlson
Shutterstock CNNMoney via CNN
Today's price increases is due in large part to the Energy Information Administration's revised forecast that US oil production would produce 9.9 million barrels daily in 2018-down from its previous forecast of 10 million bpd.
A joint ministerial committee from OPEC and non-OPEC countries including Saudi Arabia and Russian Federation, the world's biggest oil producers, will meet on 24 July to discuss compliance with a supply-cut pact and review the rise in output from Nigeria and Libya. As in the initial agreement, Libya and Nigeria were exempt from the requirement to reduce their output, but the lack of improvements in the global oil market's environment has OPEC rethinking their policy. The two countries were exempted from a deal struck with Russian Federation and 11 other producers previous year that set to remove 1.8 million barrels from daily global supply. That's up from a low this year below $45 a barrel at the end of last month, but down from the mid-to-high $50s earlier in the year, and almost back to the level before the deal last November. By contrast, it kept its prices for light crude unchanged in the United States and increased them by 45 cents in the Mediterranean and by 55 cents in North West Europe.
The U.S. Energy Department reported a decrease in U.S. oil reserves (excluding the strategic reserve) for the week ended on June 30 by 6.3 million barrels, or 1.2 percent - to 502.9 million barrels.
Global benchmark Brent crude futures were trading 0.06 per cent down at $47.49 per barrel after reaching a high of $48.79. Whilst the older oil fields, dominated by traditional methods of crude extraction, are depleting rapidly, the surge in shale oil might fail to make up for the slowdown in traditional oil production.
OPEC members led by Saudi Arabia and non-OPEC countries led by Russian Federation took action and capped their oil production to support oil market prices. The report said that big oil failed to take advantage of the oil boom years when they were making record profits and instead invested too heavily on high-cost and high-risk projects while raising dividends to shareholders leaving them unprepared for the oil downturn. Royal Dutch Shell (RDSA) gained 1.5%. OPEC needs to deliver some "shock and awe" to the oil market for prices to rise, Goldman Sachs Group Inc. said.
Market observers in the production cut deal has waned since early this year. The latest OPEC monthly report, containing June production figures, is scheduled to be published later on Wednesday. The average cost for 2018 is forecast to be $2.71 per gallon, down 3.5% from last month's forecast, but still 4.6% higher than 2017's anticipated average.
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