Oil falls to below $56 on signs of higher output

Russia cuts oil output by 346,000 bpd in Sept Novak

Speaking on Nigeria's exemption from output cut, the Minister of State for Petroleum Resources, Dr. Ibe Kachikwu, noted that although Nigeria's production recovery efforts had made some appreciable progress from October, 2016, it was not yet "out of the woods".

Crude oil futures plunged to Rs 3,318 per barrel on Tuesday.

The pact between OPEC, which is led de facto by Saudi Arabia, and other producers led by Russian Federation on cutting output by about 1.8 million bpd took effect in January this year. This should help draw down the massive 3 billion barrels of surplus crude oil that now plagues the oil industry. It notched up a third-quarter gain of around 20 percent, the biggest third-quarter increase since 2004 and traded as high as $59.49 last week.

November West Texas Intermediate CLX7, -0.18% was down 22 cents, or 0.4%, at $50.24, holding above the key $50 threshold, but futures have slumped for three of the past four trading sessions, with Tuesday's settlement marking its lowest finish since September 21, according to FactSet data. Therefore, the higher value of the USA dollar has made it more expensive for people not in the U.S., to buy oil.

With demand outpacing supply, crude and refined products inventories are shrinking. Supplies stored at sea are dwindling too, traders say. Since then, WTI has surged more than 22 percent, reaching $52.22/barrel, the highest price for the black gold since April.

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Citigroup, however, forecasts WTI at $54 USA a barrel and Brent at $58 in the fourth quarter. As a result, oil prices have soared. Of the two dozen executives interviewed this week on the sidelines of APPEC and at cocktail parties, only a handful saw prices averaging more than $60 a barrel next year.

These massive, yet conflicting swings in oil prices have been driven by a common denominator - the global surplus of crude oil. The Organization of the Petroleum Exporting Countries, Russia and other producers agreed to cut their combined oil production by nearly 1.8 million barrels per day from January in a bid to reduce a supply glut that had driven down prices.

"Nevertheless, the prospects for demand for crude oil in 2018 do not leave any chance for OPEC and other oil producing countries to increase oil production and they will have to extend the term of the deal, which will expire in March 2018, to render further support for the oil market".

Story by Javier Blas, Serene Cheong, and Sharon Cho; With assistance by Heesu Lee, Tsuyoshi Inajima, Dan Murtaugh, Alfred Cang, and Ann Koh from Blomberg.

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