Oil prices drop amid glut concerns, US withdrawal from climate deal

SEOUL: Oil prices dropped below US$50 on Friday amid worries that US President Donald Trump’s decision to abandon a global climate pact could spark more crude drilling in the United States, stoking a persistent glut in global supply.

Global benchmark Brent crude futures fell to US$49.93 a barrel, down 70 cents, or 1.38 per cent, by 0630 GMT.

US West Texas Intermediate crude futures dropped 72 cents, or 1.49 per cent, to US$47.64 per barrel.

Commodity markets were absorbing news the United States would withdraw from the landmark 2015 global agreement to fight climate change, a move that fulfilled a major campaign pledge but drew condemnation from US allies.

“This could lead to a drilling free for all in the US and also see other signatories waver in their commitments,” said Jeffrey Halley, a senior market analyst at OANDA.

“This outcome could increase the supply-side equation from the United States and complicate OPEC’s forward projections. A scenario that would not be favorable to oil prices.”

Surging US production has put a strain on OPEC members’ efforts to curb production to drain a global crude supply overhang.

A week ago, the Organization of the Petroleum Exporting Countries (OPEC) and some nonOPEC members met in Vienna to roll over an output cut deal to reduce 1.8 million barrels per day (bpd) until the end of next March.

Russian Deputy Prime Minister Arkady Dvorkovich said on Friday that he did not think that the global output cut agreement would be altered should prices go lower.

Oil prices are down some 7.5 per cent since OPEC’s May 25 decision to extend the cuts.

Faced with lingering glut woes, the oil cartel also discussed last week reducing output by a further 1 to 1.5 per cent, and could revisit the proposal should inventories remain high, according to sources.

But oil markets were offered some support by official data that showed crude inventories in the United States, the world’s top oil consumer, fell sharply last week as refining and exports surged to record highs.

Crude stockpiles were down to 6.4 million barrels in the week to May 26, beating analyst expectations for a decrease of 2.5 million barrels.

However, US crude production rose to 9.34 million bpd last week, up nearly 500,000 bpd from a year ago.

“We may or may not see more huge draws. But crude production is slowly but surely going to neutralise the (OPECled) production cut,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

Rising output from Nigeria and Libya is also undercutting the oil producers’ attempt to limit production. Nigeria and Libya are exempted from crimping output as they seek to restore supplies hurt by internal conflicts. — Reuters