Stockpiles Fall Less Than Expected, Oil Prices Drop

Oil resumed its decline as industry data showed us crude stockpiles extended gains, exacerbating an inventory overhang.

Traders said market intelligence firm Genscape had forecast a draw down of more than 1.8 million barrels at the Cushing, Oklahoma delivery point for US crude futures. Comparable Saudi Arabian flows slumped by about half.

"Output from members bound by the production deal edged lower, which kept year-to-date compliance strong at 96 percent", the agency notes. "I would think that at some point the market is going to be pricing in even greater risks that the Fed might be moving too quickly", said Mark Cabana, a rates strategist at Bank of America Merrill Lynch in NY. The fact that Iraq contested parts of the plan to cut output when the accord was implemented in November mean it's "no surprise" to see flows rising now, he said.

In contrast, China's imports from fellow OPEC member Angola jumped 13.3 percent and those from allied producer Russian Federation gained 8.1 percent.

The U.S. Energy Information Administration report on oil inventories is due this week on Wednesday at 10:30 a.m. EDT.

The news prompted Jackie DeAngelis, host of CNBC's Squawk Box, to remark, "We are supposed to be in a cutting period here, so the cheating has begun; the biggest offenders are not a surprise: Libya, Iraq, Nigeria, and here in the USA there is also a projected increase". Tankers loading in the Persian Gulf take about 45 days to reach either the Gulf of Mexico or refining centers on the US west coast.

Opec's production curbs should succeed in reducing global oil inventories over the second half of the year, Spencer Dale, BP's chief economist, believes.

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The problem for the Saudis is that it appears fellow Opec members are not doing as much to help the cause of rebalancing oil markets and therefore boosting prices.

Gold rose after the weaker-than-expected USA data knocked the dollar.

That may not sound like a lot, but it equates to about 260,000 bpd in British and US exports to China. That's down from 14 million barrels in the same period in May.

That's a longer time-frame than predicted by Saudi Arabian Energy Minister Khalid Al-Falih, who expects stockpiles will subside to normal levels by the end of the year.

The IEA has revised its forecast upwards for USA oil production this year, and said Brazil and Canada were also expected "to make further gains".

The world's top exporter Saudi Arabia outlined cuts to customers in July that included a reduction of 300,000 barrels per day (bpd) to Asia as well as deeper cuts in allocations to the United States.

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