Crude Oil Price Rises, Then Slips: Supply Cut Extension Deferred

Soaring output and brimming inventories have made US WTI crude much cheaper than global peer Brent, which is being supported above $50 per barrel by the OPEC-led production cut.

The United States imported about 1.3 million bpd of Saudi oil in February, according to U.S. Energy Information Administration data.

Almarzooq said he's not surprised prices have fallen this year.

"Maybe the committee realized, as we have stated, how catastrophic it will be for the market to begin talking about further cuts and fail to follow through", it said in a note to clients Monday.

OPEC Secretary General Mohammad Sanusi Barkindo, Iraqi Oil Minister Jabar Ali Luaibi and UAE Energy Minister Suhail Mohamed Faraj Mazrouei also attended the Sunday meeting. Global oil stockpiles will grow in the second quarter of this year, predicts Novak.

But the final version said only that the committee had requested a technical group and for the OPEC Secretariat to "review the oil market conditions and revert ... in April, 2017 regarding the extension of the voluntary production adjustments". We can see in the chart below that South Korea continues to pull in more and more light crude. So far, five OPEC members, including Kuwait and Angola, have backed an extension of the cuts. The committee did not provide a country-by-country breakdown of compliance, only saying that combined OPEC/non-OPEC conformity with the deal was 94%. Analysts said the lack of an immediate extension could drag on crude prices. The non-Opec agreeing to the deal on the other hand have managed to achieve a compliance level of 64 per cent. Saudi Energy Minister Khalid Al-Falih did not arrive in Kuwait but discussed key issues with the meeting participants over the phone. Eleven other non-OPEC oil-producing countries pledged in December to cut an additional 558,000 barrels a day, reaching an overall reduction of 1.8 million barrels per day.

Speculation about whether or not OPEC will extend its production cut deal for another six months will be one of the most significant variables affecting oil prices in the short run.

An initial draft statement by the committee said it "recommends [a] six-month extension" to the production curbs, which were meant to try to eat into the global supply glut. For the past few weeks, production has been up on a year-over-year basis for the first time in more than a year.

"Opec and non-Opec chose to get ahead of the game this weekend, announcing they are reviewing whether the output curb deal should be extended", said Mr Jeffrey Halley of futures brokerage OANDA in Singapore, adding that this had given crude some support.

  • Zachary Reyes