Oil rises; producers pledge output cuts ahead of meeting
- Author: Zachary Reyes May 20, 2017,
May 20, 2017, 17:05
On Thursday, the prices of oil fell as the market stayed well supplied with crude, despite of all the efforts by OPEC and other big exporters to cut down production and support prices.
Saudi Arabia was one of the oil producers whose national budgets were highly impacted by the low oil prices and the kingdom needs higher oil prices to meet its financial obligations.
While this deal has reignited non-OPEC investment, we expect OPEC to maintain discipline through year-end 2017, allowing inventories to continue to normalize. For instance, Kazakhstan, who was earlier part of this deal, is unwilling to support the production cuts unless their restrictions terms are eased. Thus, oil prices jumped shortly after the release, with Brent futures hitting $52.45 per barrel and WTI futures climbing to $49.50 per barrel. A Reuters report says that almost 10 million barrels of United States oil is headed towards Asia. Yet, production in the USA has been increasing, threatening to derail the group's goal.
But more cargoes are flowing right back into its tanks, which can hold 45 million barrels, as sellers struggle to find refiners to buy freshly loaded oil, the traders said.
USA drillers added eight oil rigs in the week to May 19, bringing the total count to 720, the most since April 2015. This is reflected in a near-record level of production. JPMorgan is forecasting USA shale to grow by 1.05 million barrels a day next year, while Bank of America Merrill Lynch has a figure of 950,000 barrels a day.
Following a meeting in Beijing, Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said: "The two ministers agreed to do whatever it takes to achieve the desired goal of stabilizing the market and reducing commercial oil inventories to their five-year average level".
Is the oil market getting exhausted of OPEC's verbal intervention?
Refinery crude runs USOICR=ECI rose by 363,000 barrels per day, EIA data showed.
Often referred to as Canada's oil sands discount, Canadian heavy oil always trades below the North American benchmark West Texas Intermediate price in part because the thicker peanut-butter-like consistency makes it more expensive to transport and refine, but also due to an ongoing lack of market access. Reports suggests that a time line of 6-9 months is likely to be agreed upon.
Even a "drastic" downward shift in the market conditions won't lead to a rapid collapse of USA oil production, according to Rystad Energy.
"The markets are really starting to see the effects of the cuts".
Though Oil is moving higher, the market is still not without its risks.