Oil prices rise as market expects extended production cut
- Author: Zachary Reyes May 24, 2017,
May 24, 2017, 23:09
Saudi Arabia's Gulf ally Kuwait said on Tuesday not every OPEC member was on board yet for an extension to March 2018, but most ministers and delegates in Vienna said they expected a fairly painless meeting.
Even if the much-anticipated extension does get inked, it is the ability of individual members to deliver that will ultimately define the supply and most importantly the oil price.
However, several delegates and ministers said they did not believe cuts could be extended to a full year.
"A path to energy security means enabling more American production and investment, not having the Government store an unnecessary large amount of oil underground", the document said.
Saudi Energy Minister Khalid al-Falih noted a "trend" among participants to prolong the cuts for nine months.
Meanwhile, the Opec is still debating whether to extend oil output cuts by six or nine months, UAE Minister of Energy Suhail bin Mohammed Faraj Al Mazroui said.
Under the existing deal, Iran received an exemption slightly to raise output, which has been curtailed by years of Western sanctions.
Oil slumped to $48 per barrel earlier in May, the lowest in five months, after United States government data showed production cuts from OPEC and other exporters had not been enough to reduce U.S. supplies.
Oil's earlier price decline, which started in 2014, forced Russian Federation and Saudi Arabia to tighten their belts and led to unrest in some producing countries including Venezuela and Nigeria.
While the market sees an extension by nine months as the base-case scenario, surprises on Thursday could include a deepening of the cuts.
Brent crude futures rose to $54.18 a barrel at 4.50am GMT, up 3c from their last close.
Data from the U.S. Energy Information Administration indicate that maintaining the curbs into the first quarter of 2018 would bring stockpiles back in line with the five-year average - OPEC's stated goal.
The U.S. has more leeway to release the SPR crude as its own production has surged 49 percent over the past five years.
However, if the drawdown does affect prices, "it's going to be US prices that will be impacted", said Sandy Fielden, Director of Research, Energy and Commodities.
The producers were expected to agree to the recommendation at a meeting at OPEC headquarters in Vienna on Thursday.
BMI Research said that the Opec-led cuts would only result in a balanced market this year, and that from 2018 onward markets would return to oversupply, albeit at a lower level than 2013-2016.