Oil prices hiccup as OPEC meets to extend production cut

The group could also send a message to the market that it will seek to curtail its oil exports.

"Over a five-plus-year horizon, oil price growth is in a structural slowdown, pressured by persistent supply gains", BMI Research said in a note to clients.

Offshore drilling services company Seadrill Ltd. has made "significant progress" with its banks on the terms of a debt restructuring plan that will likely require filing for bankruptcy in the US or United Kingdom. "Russia has an upcoming election and Saudis have the Aramco share listing next year so they will indeed do whatever it takes to support oil prices", said Gary Ross, head of global oil at PIRA Energy, a unit of S&P Global Platts.

Prospects for the oil output cut extension have brightened following yesterday's meeting of some key Opec and non-Opec members, which recommended keeping output cuts at the current level that was decided late a year ago. At around $50 a barrel, benchmark crude is up from the sub-$30 levels reached in early 2016.

Others, however, point out that US producers are now so efficient that they can live with prices as low as $40 per barrel, suggesting that an extreme backwardation would be needed to squeeze them out of the market. Now, with crude prices around $50 a barrel, shale drillers are ramping up production even more.

The plan to sell 270 million barrels of oil, part of the US president's budget proposal to cut national debt, suggests the reduction will be in addition to the 185 million barrels of SPR sales already approved by law, bringing the total stockpile volume down to 260 million barrels from the current 685 million, according to Goldman.

Commerzbank cited data from the U.S. Department of Energy saying U.S. production was roughly 540,000 barrels per day higher in mid-May than at the start of the year. Blanch noted that a backwardation market will put downward pressure on forward prices and hurt shale players who price their products on forward prices.

The deal is likely to be supported by a number of non-OPEC countries, including the new ones, for example, Kazakhstan, the expert said.

In their meeting last November, OPEC members unanimously agreed on the oil price of 60 USA dollars per barrel, hence they agreed to cut output by 1.2 million bpd down to 32.5 million bpd for the first six months of 2017.

"They are not major producers, but their move could have a psychological impact on the global oil market", he said.

According to a Reuters' dispatch, Opec members Iraq and Algeria as well as top non-Opec producer Russian Federation also said they support a nine-month extension.

  • Zachary Reyes