OPEC cuts not enough for investors
- Author: Zachary Reyes Jun 06, 2017,
Jun 06, 2017, 17:29
Concerns remain that OPEC-led production cuts will support a further rise in output from the United States, where producers can operate at much lower costs.
"With Russia and Saudi announcing nine months (of extended cuts) a week before, this was already priced in, so the market wanted the "over-and-above" which didn't come - hence the sell-off", oil analyst at Energy Aspects in Singapore, Virendra Chauhan told Reuters. In May-June, the level of production is expected to decline and, in general, the obligations will be fulfilled in full by half a year.
Regarding the effect of the proposed partial sale of US Strategic Petroleum Reserve (SPR) on OPEC deal, the analysts noted that the impact on oil prices from a gradual sell-off of the SPR is likely to be small as commercial stocks are falling.
David Arrington, president of shale oil producer Arrington Oil & Gas in Midland, Texas, said that how US producers respond in coming months will have as much of an effect on pricing as OPEC's cuts.
Just one day after OPEC announced a nine-month extension to its November production cut deal, the top oil official told reporters on Friday that "exports to the US will drop measurably".
US output since previous year has increased by almost a million barrels a day to a daily 9 million barrels.
The decision by the oil producers also pushed down Asian shares.
"Today the bottom evaporated from the market", he said. American oil production has risen over 6% since the start of the year.
USA oil production has already risen by 10 per cent since mid-2016 to over 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia.
Now however, oil stockpiles of 3 billion barrels - 300 million above the five-year average -are keeping prices low, even as production is cut.
As of 08:51 (MSK) July futures for Brent of Brent crude fell 0.60% to $51.13.
U.S. West Texas Intermediate or WTI Crude futures were trading 0.45 percent higher at $49.12 on the New York Mercantile Exchange as of 5.55 am EDT. Many OPEC members spoke after the meeting of a stabilization of prices in the near-term, however given the current supply and demand fundamentals with the oil market, I don't expect a rebound to 2013 levels anytime soon.