OPEC and non-OPEC nations poised to extend output cuts
- Author: Zachary Reyes May 25, 2017,
May 25, 2017, 15:06
"With oil stocks nowhere near OPECs self-assigned objective of the recent five-year average level, an extension of cuts seems all but a forgone conclusion", said Harry Tchilinguirian, strategist at BNP Paribas.
One of the main reasons why markets have not tightened more has been USA oil production, which has soared more than 10 per cent since mid-2016 to 9.3 million bpd. US light crude CLc1 was 10 cents lower at $51.26.
The committee said in a statement it had recommended extending the cuts by nine months to March 2018.
June West Texas Intermediate futures crude rose 34 cents, or 0.7%, to settle at $US51.47 a barrel in NY, but late dipped back under the $US51 level in electronic trading.
Ecuador Oil Minister Carlos Perez said OPEC and other oil-producing countries would discuss a six- or nine-month extension to output cuts and probably choose the latter.
The top oil producer in OPEC, Saudi Arabia, favours extending the output curbs by nine months rather than the initially planned six months, to speed up market rebalancing and prevent crude prices from sliding back below $50 per barrel. Non-OPEC countries will attend the meeting, including Russia's Energy Minister Alexander Novak.
"With the U.S continuing to win market share by producing more oil at lower price levels, the global supply excess will take a long time to eradicate", said Fawad Razaqzada of Forex.com.
He added that OPEC members Nigeria and Libya would still be excluded from cuts as their output remained curbed by unrest.
Most traders are betting on the nine month extension since this is what the Saudis and Russians agreed to a little over a week ago.
And even in the narrow confines of a cut extension, the specter of non-compliance looms: although Iran most recently declared its support for a cutback extension, its oil minister Bijan Zanganeh on Wednesday dodged the question of whether the Islamic republic would actually participate in the cuts and instead made a brief statement about the importance of full compliance.
These volumes are "small when put into the context of the size of the oil market and the current OPEC cuts", Courvalin wrote. Saudi Arabia, which holds the current OPEC presidency, will also attend.
Oil prices have risen less than OPEC hoped for from last year's levels.
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.