Even a fresh agreement in May, between the OPEC and participating non-OPEC producers, failed to lift price. As of today, US oil production has risen over 10 percent since mid-2016 to 9.34 million barrels per day (bpd).
Prices drifted lower during Thursday's Asian session with buyers unable to make any impression.
"For fellow OPEC members, who agreed to reduce production by 1.2 million bbl/d, to see their cut effectively diluted by almost two-thirds must be very frustrating, especially as their pact has, hitherto, been well observed by historical standards", the IEA said. According to the latest estimates, compliance declined to 78% for June from 95% in May.
Elsewhere, OPEC's compliance with production cuts fell in June to its lowest since the deal with Russian Federation kicked in early in the year, according to the International Energy Agency. Strong profits for fuel oil has also encouraged refineries to run sour crudes. They said the rising global demand, and its outperformance of recent expectations should be the primary takeaway from the IEA report. The initial price boost from the agreement on the cutbacks previous year also encouraged more output from shale-oil drillers in the US, further diluting OPEC's efforts.
Supply issues will tend to remain the dominant short-term focus with more positive rhetoric from OPEC needed to revive confidence, although choppy trading conditions are liable to continue. Of the three, Libya and Nigeria are regaining ground rapidly, adding about a quarter million barrels of new oil to the market each day.
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The downside is that there are production gains in Libya and Nigeria, which aren't subject to an OPEC-led agreement to cut about 2% of the world's daily output. Production (the IEA's estimation) was lagging behind demand at 96.69 million bpd in May.
"An external break-even price below the global oil price thus indicates a potential for either additional fiscal spending or currency appreciation; a break-even price above the global oil price indicates an underlying pressure for budget cuts or depreciation, at least in the absence of substantial buffers of reserves or borrowing capacity", Setser and Frank say.
The EIA also lowered its outlook for USA oil production that might become more severe as shale procures are losing millions and can't find the money to complete rigs, and that means there could be another round of shale bankruptcies in the making.
The EIA report also showed that US oil production inched higher by 59,000 barrels a day to almost 9.4 million barrels a day. Since the shale revolution through 2000s, US producers reached a production level that took the country from a net importer to a net exporter.