Oil Tumbles to Five-Month Low as US Production Builds
19 May, 2017, 23:32
"Based on the consultations I have had with participating members I am rather confident the agreement will be extended into the second half of the year and possibly beyond", Saudi Oil minister Khalid al-Falih said at the Asia Oil and Gas Conference in Kuala Lumpur.
Oil prices have risen more than 3% after Saudi Arabia and Russian Federation said a deal to cut production should be extended until March next year.
Saudi Arabia and Russian Federation said on Monday they agreed on the need for a 1.8 million barrels per day (bpd) crude supply cut to be extended by nine months, until the end of March next year.
Longer cuts at already agreed-upon volumes are needed to reduce global inventories to the five-year average, the energy ministers of the world's biggest crude producers said at a joint press briefing in Beijing yesterday.
The global benchmark for crude oil was up $1.25, of 2.5 percent on the day, at $52.10 a barrel.
OPEC and some non-OPEC producers agreed in December to cut output by 1.8 million barrels per day for six months to help stabilize oil prices. Beyond the element of surprise from today's announcement, and the need for broader ratification by other participants, we believe that such a moderate oil price response is consistent with.
OPEC estimated last week however, that commercial inventories in OECD countries were still 276 million barrels above the five-year average benchmark.
It has been suggested that United States output, which is not included in the deal, might scupper the agreement, however, the current weak oil price makes exploitation of USA shale oil deposits marginal, so the U.S. also has a vested interest in seeing the oil price rise from a producer's perspective, but this is tempered as the U.S. is the largest market for oil. USA output has risen more than 10% since the middle of a year ago, and data released on Friday by oil services firm Baker Hughes showed that the number of active rigs across the country rose for the 17th week in a row.
If producers maintain their cuts at the current pace, it could push the market into a small deficit by the fourth quarter, said Edward Bell, director of commodity research at Emirates NBD in Dubai.
Opec ministers are due at the end of this month to meet in Vienna to discuss the extension of output curbs, seeking to reach agreement among all participating members inside and outside the cartel.
Some analysts said that US production could still threaten to disrupt the market balance unless the cuts were deepened.
More countries have been invited to the meeting of OPEC and its partners to be held May 24-25, according to Novak.