Oil prices fall as OPEC keeps production high

Crude oil prices fell on Monday as China’s oil imports dropped sharply and markets were expected to be increasingly oversupplied following OPEC’s decision to keep its production targets unchanged.

China, the world’s biggest net oil importer, bought nearly a quarter less crude in May than it did in the previous month, according to data from China’s General Administration of Customs. Its imports of oil products also fell just over 6 per cent while product exports fell 10 per cent.

China’s report of a fall in import demand came after the Organization of the Petroleum Exporting Countries (OPEC) agreed on Friday to stick to its policy of not limiting its output, which currently stands above 30 million barrels per day. Both exacerbate worries about a glut in a market where millions of barrels of crude are stored in tankers without a buyer.

“The world’s crude demand/supply remains in excess of supplies,” said Yasushi Kimura, president of the Petroleum Association of Japan (PAJ) after OPEC’s decision.

“OPEC projected a continuation of firm demand in global crude demand and judged there’s no need to change current production levels. The decision also may have come about reflecting the view that OPEC’s lone production cuts would be offset by rising U.S. shale oil production,” he added.

Front-month Brent futures dropped 56 cents to $62.75 a barrel by 0313 GMT. U.S. crude was at $58.55 per barrel, down 58 cents.

OPEC ministers said the group may even exceed the 30 million bpd target, especially if there is an increase in production and exports from Libya, Iraq or Iran.

“We forecast that Saudi and other low-cost producers will continue to increase output as this is the next logical step to maximizing revenues in the face of shale oil’s scalability,” Goldman Sachs said, adding that the global oil market would remain oversupplied in 2016 due to increased production from OPEC, Iraq and Russia.

Adding to the glut, analysts also expect U.S. drilling to start increasing again in the second half of this year following 26 weeks of declines.

Drilling fell after crude prices dropped to six-year lows in January, but a modest recovery and reduced operating costs are allowing U.S. drillers to operate at costs that would have been previously unviable.