Oil prices continue sliding as production limit optimism fades

A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie Oklahoma

Last week's comments from Saudi Arabia's Energy and Industry Minister Khalid Al Falih on the extension of the six-month output cut may continue to sooth frayed nerves, especially among traders who are still reeling from falling oil prices, but analysts say positive sentiment still remains fragile.

The deal has lifted oil prices, but inventories in industrial nations are rising and higher returns have encouraged U.S. companies to pump more.

Put simply, OPEC acted as a safety valve, it released the valve when there was growing demand or a major supply outage, and restrained it during periods of sudden demand weakness such as global recessions. Opec raised its 2017 Non-Opec oil supply growth forecast to 0.4 mbpd (prev. forecast 0.24 mbpd rise).

In its latest monthly report, OPEC cited secondary sources showing only the kingdom and Angola had cut more than promised in February.

OPEC oil output cuts were suppose to occur in the amount of oil transported across the world.

"This unwinding of position is both a cause and reflection of the big fall in crude oil prices when the cracks in the Opec/non-Opec deal emerged and when it seems like it became evident shale oil is back and the new swing player", said Greg McKenna, chief market strategist at brokerage AxiTrader. Overall non-Opec compliance has been also been a concern with some estimates suggesting only ~64 per cent compliance so far.

OPEC's deal now is trying to send a unified message that the members are making every effort to rebalance the market, so it's unlikely that OPEC will correct Iraq's insistence that the deal was forged over export figures rather than production figures.

Although U.S. crude oil inventories were already high in 2015, they rose even further in 2016, with end-of-year inventories reaching 484 million barrels, 35 million barrels higher than their end of 2015 levels.

But large concentrations of hedge fund positions, and an imbalance between the long and short sides of the market, often precede a sharp reversal in oil prices.

Some still predict oil prices to rebound stronger, as the likes of Morgan Stanley and Citigroup Inc. expect higher prices in the second half of 2017.

Through the first three quarters of 2016, USA crude oil production trended downward, dropping from 9.2 million barrels per day (b/d) in January to 8.6 million b/d in September.

A record 10.5 million barrels of Russian Urals will arrive in Asia between April and June, Eikon data shows.

The American Petroleum Institute (API) data recorded an inventory build of 4.5 million barrels for the latest week compared with expectations of a build close to 2.5 million barrels. This begets an important question: Why didn't oil prices tumble in 2013?

For many years after the 2003 US invasion, Iraq was exempt from OPEC's production quotas in order to help the country rebuild.

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