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Oil in Global Economy Series: OPEC May deal compliance review

15 June, 2017, 01:33 | Author: Paula Vaughn
  • Oil surges

Traders said market intelligence firm Genscape had forecast a draw down of more than 1.8 million barrels at the Cushing, Oklahoma delivery point for U.S. crude futures. IEA said its provisional monthly data for May indicates that OECD stocks may be little changed.

OPEC and other exporters such as Russian Federation have agreed to keep production nearly 1.8 million barrels per day (bpd) below the levels pumped at the end of a year ago and not to increase output until the end of the first quarter of 2018. This sector has been one of the biggest headaches for OPEC as they has been flexible in increasing output in response to higher prices.

The watchdog said its first forecast for 2018 made "sobering reading for those producers looking to restrain supply". Brent futures are trading at higher prices for further-dated contracts, which is an encouragment for more production rather than less.

A day after OPEC complained that increased output in the United States was slowing efforts to rebalance supply and demand in the oil market, the IEA also suggested that the dynamism of United States producers could prove a headache for exporters.

The news has sent dollar values plummeting along with oil prices, with Bloomberg reporting a 0.5 percent fall in the dollar spot index while WTI fell below $45 and Brent below $47.

In addition, USA crude stockpiles fell by 1.7 million barrels, less than the expected decline of 2.7 million barrels.

With regards to the prices, the ASB indicated that the OPEC Reference Basket averaged $40.76/b in 2016, down from $49.49/b in 2015 and reaching the lowest yearly average since 2004.

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At 2:22 p.m. ET, the Toronto Stock Exchange's S&P/TSX composite index was down 160.94 points, or 1.05 per cent, to 15,218.61. We consider that an overly sanguine forecast, even taking into account the "improving momentum in most major economies" in the first quarter of 2017 cited by OPEC.

"I'd have expected demand to be closer to 9.6-9.8 [million barrels a] day for this time of year, but I haven't lost all hope just yet", he said.

The problem for the Saudis is that it appears fellow Opec members are not doing as much to help the cause of rebalancing oil markets and therefore boosting prices.

ANZ bank said in a note to clients that prices were "under pressure earlier in the day after a report from OPEC showed that its production had increased".

Despite the glimmer of hope, there are increasing signs that declining inventories in the US won't make up for surging domestic production or increasing output by other non-OPEC states.

The cartel reduced its estimate of oil supply growth from producers outside the group this year to 840,000 bpd from 950,000 bpd, following the decision to extend the cut by nine months.

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