(MENAFN- ProactiveInvestors)There was an increase in inventories in the US last week delivering unwelcomed news in an oil market that's already oversupplied. Traders reacted as expected midweek and in early trading on Friday Brent crude was priced just above US$46 with WTI holding above US$40 a barrel. The US Energy Information Administration said that crude stockpiles increased by 2.6 million barrels after analysts seemed convinced we would see a decline. The oil price naturally took a hit falling to a new low around US$40 a barrel on Wednesday a price not seen in more than 6 years. American oil imports were also up but gasoline stocks declined by 2.7 million barrels. American oil production continues now around 9.3 million barrels a day with little sign of key producers cutting back to any significant levels in this low price environment. There's been a slight fall in production numbers week on week but nothing that would encourage a sustained price increase. The price was also impacted by the weakness in the dollar and the September expiration of WTI also added volatility to the market. Brent crude got particularly hit this week loosing several dollars on the price to close the week. Analysts got it wrong When OPEC decided to maintain production and call on non-OPEC producers to help solve the problem many analysts and major producers bet on a swift and sharp shock to the price. This did not happen and the prolonged pain is being felt all around. The danger now is where it might go with many analysts like Citigroup fearing a low of US$30 for WTI or even lower. It's a guessing game as no one can safely predict the movement but the bets are definitely to the low side in the short term. While OPEC observed a slight pick up in economic demand for the second half of the year consumer confidence is sluggish in major markets and the Chinese economy is struggling and coping with the recent currency devaluation. On the optimistic side one might hope that cheaper crude will entice new industry and indirectly regenerate demand. OPEC members selling for a loss Many OPEC members will be selling oil well below their break-even point. They all embarked on a programme of social spending when the price was high but many will be having difficulty meeting budget requirements in recent months. Saudi Arabia continues to hold fast but many economists say the Kingdom could suffer a more than 20 percent budget deficit this year. The International Energy Agency says that Saudi Arabia and Iraq are continuing to put oil on to the market at 'breakneck speed' adding to the global oversupply. This weeks' numbers from the International Energy Forum's JODI the Joint Organizations Data Initiative shows Saudi Arabian oil exports up by 430000 barrels a day to stand at 7.37 million barrels a day. Smaller OPEC producers are vulnerable While Saudi Arabia may well weather the storm with its healthy financial reserves other smaller producers are more vulnerable. According to RBC Capital markets the 'Fragile Five' are facing a tough time. Algeria Iraq Libya Nigeria and Venezuela are all feeling the pressure and many have expressed their views publically. Algerian Oil Minister Salah Khebri is reported to have written to OPEC appealing for the organisation to take action at this time of low prices. Analysts agree that all these economies are suffering in the current price environment. The coming months will remain difficult for oil producers. The summer driving season is coming to a close economic growth is not charging ahead and the market remains over supplied all bearing looking indicators for the second half of the year.
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