Oil edges lower on oversupply concerns as Opec+ set to raise output

Daniel Fowler
August 5, 2020

US energy firms kept the number of oil and natural gas rigs unchanged at a record low as the rig count fell for a fifth straight month, although July marked the smallest monthly decline.

At the same time producers in the Organization of the Petroleum Exporting Countries (OPEC) and its allies, together known as OPEC+, are stepping up output this month, adding around 1.5 million barrels a day of supply. The mitigation efforts have resulted in reduced economic activity and caused changes in energy supply and demand patterns.

Texas had the largest decrease in crude oil production from April to May 2020 among states and producing regions at 764,000 b/d, a 14.8% decrease.

Global benchmark Brent crude was trading at $43.80 per barrel at 0615 GMT for a 0.79% loss after closing Monday at $44.15 a barrel.

In a further sign of a patchy rebound in demand, analysts estimate US refined product stockpiles rose last week, according to a preliminary Reuters poll ahead of data due from the American Petroleum Institute industry group later on Tuesday and the USA government on Wednesday.

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EIA expects US crude oil production to rise in July 2020 as demand and prices increase.

"I think it is fair to say that most oil market participants expected more downward pressure on oil to start the week with COVID-19 ravaging the landscape and OPEC+ adding more barrels into play", said Stephen Innes, Chief Global Markets Strategist at AxiCorp, in a daily note.

In China, the government's manufacturing Purchasing Manager's Index unexpectedly rose to 51.1 in July from June's 50.9 (the 50-point mark separates growth from contraction); factory production in South Korea jumped at the fastest rate in over 11 years; and Japan's output ended four months of decline. Texas, Oklahoma, North Dakota, Pennsylvania, and New Mexico each had record monthly drops in natural gas production in May.

OPEC+, a grouping of OPEC and allies including Russian Federation, is set to step up output in August, adding about 1.5 million bpd to global supply.

EIA forecasts that USA marketed natural gas production-which it defines as gross withdrawals of natural gas less natural gas used for repressuring reservoirs, quantities vented or flared, and nonhydrocarbon gases removed in treating or processing operations-will continue to decline for the remainder of 2020.

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