Obviously, the market is not impressed with the production cuts, and continues to focus on production increases in the U.S. With the decline in the price of Brent crude, the Brent-WTI differential has narrowed.
August Brent crude also fell down 1% or 48 cents closing in at $49.47 per barrel which was the benchmark's lowest settlement in the past month.
The Organization of the Petroleum Exporting Countries has pledged to cut nearly 1.8 million barrels per day (bpd) to help reduce global inventories to their five-year average.
Another reason behind the increase is said to be the tensions in the Middle East, where top oil exporter Saudi Arabia cut ties with top liquefied natural gas (LNG) shipper Qatar over concerns about terrorism and extremism. Gasoline blendstock futures on the New York Mercantile Exchange fell about 4% after the data was released.
"I think it's still going to be a bit of a debate on the true impact it can have on the oil market", said Olivier Jakob, strategist at Petromatrix, as quoted by Reuters.
On May 25, OPEC and 10 non-OPEC partners including Russian Federation chose to roll over a 1.8 MMb/d production cut agreement into March 2018.
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While Opec works to bring the market back into balance with its agreement to cut output by 1.8m barrels per day (bpd), production in the USA has been rocketing. Meanwhile, investors are impatient to see the cuts help diminish global stocks.
Moreover, oil is in abundant supply now. "As with the larger regional tensions between Saudi Arabia and Iran, this may not mean any change in the level of cooperation regarding oil production policy where "business is business" tends to be the rule".
As concerns about supply persist, US drillers have added rigs for 20 straight weeks, the longest streak in at least three decades, undercutting efforts by the OPEC to cut production and eliminate a global glut. That marked a 20th consecutive weekly rise.
Oil tumbled to its lowest in four weeks as an unexpected increase in USA crude and gasoline stockpiles stoked fears that the global supply glut will remain unabated. The previous record average was 9.6 million barrels a day in 1970. The supply cut deal championed by Saudi Arabia targeted a reduction of 1.2 million barrels per day.
After swelling to record highs earlier this year, there's been a strong draw in United States inventories recently, driving them well below the levels seen this time a year ago.
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