Oil prices down slightly in Monday trading
Oil prices fell by pennies in trading on Monday despite assurances from Saudi Arabia’s oil minister that oil producers will “do whatever it takes” to rebalance the crude market.
Most OPEC nations along with non-cartel members including Russia have agreed to cut their production by 1.8 million b/d during the first half of 2017. Recently, OPEC has hinted that the cuts will be extended into the last half of 2017 and may even go into the first quarter of 2018.
“Based on consultations that I’ve had with participating members, I am confident the agreement will be extended into the second half of the year and possibly beyond,” Saudi Oil Minister Khalid al-Falih told Reuters the Asia Oil and Gas Conference in Kuala Lumpur.
Following Falih’s remarks, oil prices rose slightly, however, gains were lost amid pessimism on draining bulging oil inventories.
Brent crude fell by 8 cents to $49.02/barrel by 1:45 p.m. and US light crude was down by 6 cents to $46.16/barrel.
“The market is getting tired of hearing from OPEC how good they are, how compliant (with supply curbs) they are and especially how all their projections for inventories falling seemed to be moved into the future,” Eugen Weinberg, head of commodity research at Commerzbank told Reuters.
“Those claims do not withstand the reality check with the inventories staying stubbornly high and non-OPEC production rising strongly.”
OPEC will review the cuts at their meeting in Vienna on May 25. Should the cartel agree to continue the cuts, Weinberg says OPEC will likely struggle with target adherence.
“Compliance rates, in my opinion, will not be as high as they were in past months.”
Falih says seasonal low demand, refinery maintenance and increased non-OPEC growth are to blame for the recent drop in oil prices. Baker Hughes reported on Friday that US energy companies have extended the recovery in oil drilling into a 12th month.
Since falling to a low point in May of last year, US producers have increased the number of oil rigs by 387, up by 123 per cent, according to Goldman Sachs.
The boost in activity in the US oil industry has resulted in an oil production increase of over 10 per cent since the middle of last year. US production now sits at about 9.3 million b/d, the highest since August, 2015 and close to Russian and Saudi Arabian production numbers.
Reuters reports many analysts expect US crude output to near 10 million b/d in the coming year.
“It’s all about inventories and U.S. shale versus OPEC,” Hussein Sayed of brokerage FXTM told Reuters. “OPEC members have no choice but to talk up prices by signalling an extension to the production cuts agreement.”
