Oil prices drop Thursday as supply outpaces demand. A fall in oil prices has added almost 5% to trading losses on Thursday. U.S. crude dropped to $44.58 a barrel, representing a 2.1% drop while Brent crude fell to $47.49 a barrel, a 1.8% drop in price bringing the price of oil to its lowest since November 2016.
Worries about a worldwide crude oil glut have reappeared. OPEC had come to an agreement to cut crude output in November last year, but there are now concerns among investors that they will not agree to reduce production further at the next OPEC meeting in Vienna on May 25. The effects of the November cutback will be discussed at this meeting. There are fears that the cuts will not be extended in an attempt to rectify the current situation.
In spite of November’s cut, demand is still lower than the supply rate and oil prices dropped by 15% since the beginning of January. The November deal helped to generate an increase in prices at the start of 2016, but this has now swung the other way.
Investors are edgy due to the uncertainty of OPEC’s approach to this, and it is not sure whether they and other oil-producing countries will agree to another cutback in production. It seems to many that the oil glut will continue to rise. Some, including Russia, expect the OPEC cartel to extend a cut in output, although there are serious doubts if other countries will follow suit.
U.S. oil production continues to increase, making it unlikely that the current crude output limits will extend beyond this year. The U.S. is still generating 9.3 barrels a day, and production has increased by 10% since mid-2016.
Tuesday’s information that last week’s U.S. crude stocks dropped by just 0.93 million barrels was disappointing. The expected drop was 2.3 million barrels. This is having a negative effect on oil prices.
The oil prices drop and continuing oil glut has affected Thursday’s share prices of oil giants Exxon Mobil (down 1.3%), Chevron (down 2%) and BP (down 1%.)
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