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OPEC likely to extend output cuts, but price relief elusive

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Saudi Oil Minister Khalid al-Falih insisted on Thursday the cuts were working, saying stockpile reductions would accelerate in the third quarter and inventory levels would come down to the five-year average in the first quarter of next year.

A higher oil price can impact the FX market in two ways: firstly it can put upward pressure on inflation expectations, which can impact a currency's yield differential; and secondly it can have a direct impact on the attractiveness of the so-called "commodity currencies" and the commodity import currencies. But any uptick in prices may be modest and temporary.

Since the USA shale oil boom began at the start of this decade, imports have fallen sharply - sometimes dropping to as low as 7 million bpd from as high as 10 million bpd in the middle of the last decade.

Though prices were then higher, Driscoll said US producers are now so efficient that they can live with a lower market.

Still, analysts were disappointed the group did not seek steeper cuts and a longer extension.

West Texas Intermediate for July delivery fell 11 cents to settle at US$51.36 a barrel on the New York Mercantile Exchange.

Analysts argue oil prices will only rise if every OPEC's nation follows the policy to reduce oil production, but countries such as Venezuela ignored their pledges.

Tamar Essner, director of energy and utilities at Nasdaq Corporate Solutions, said that the countries that had agreed to the cut had complied by easing production but continued to export at high levels from existing inventories. "Inventories are drawing down", he told reporters.

Motorists headed out for extended trips during the Memorial Day weekend are facing moderate gasoline prices as crude oil prices slumped massively after OPEC extended their production cuts through March 2018.

OPEC and key producers including Russian Federation agreed Thursday to extend curbs on oil output to the end of March 2018. Speculation of how OPEC and other major producers might extend that deal, and whether they would promise deeper cuts, has moved markets throughout the year.

Higher crude prices would fatten profits for oil companies and energy services firms that make up the core of Houston's economy.

USA crude supplies fell 4.43 million barrels last week-more than twice the 2 million-barrel decline forecast by analysts surveyed by Bloomberg-to 516.3 million barrels, the EIA said. This was somewhat offset by a rise in USA production and given that drilling rig activity has climbed for 18-consecutive months, US production should continue to climb.

Furthermore, the reaction of US shale producers will be a key factor in establishing price levels, said Benigni, adding "this supply response is a little bit of a risk for OPEC so if prices go really up it may not be in their interest".

In the week ended May 12, 2017, United States commercial crude oil inventories fell ~1.8 MMbbls (million barrels) and were at ~520.8 MMbbls, according to EIA (U.S. Energy Information Administration) data released on May 17, 2017.

OPEC has for weeks been laying the groundwork to extend production cuts.

More than 400 oil rigs are now working USA shale fields, an increase of more than 120 per cent compared to a year ago.

OPEC's national representatives and officials from its Vienna secretariat met on Wednesday and Thursday, sources said.

The producers were expected to agree to the recommendation at a meeting at OPEC headquarters in Vienna on Thursday.

"Over a 5+ year horizon, oil price growth is in a structural slowdown, pressured by persistent supply gains", BMI said.

In recent weeks, optimism over a deal has helped push prices higher.

"We are targeting that by the end of the extension period (nine months) we are trying to prep and finalise repairs of our infrastructure and at that time we would be able to join", he said.

The decision to maintain oil cuts may in fact have only kicked the can down the road until March.

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