Will Producers Hang in There?
There is little doubt that the agreement of OPEN and 11 non-OPEC countries to cap oil output is showing results. But is it enough?
According to the International Energy Agency’s most recent market report, the market is very close to balance, but ‘close to’ isn’t the same as being there, at least not yet.
Cutting supply is only half the story though. The other half is expectations that following a supply reduction, demand will rise over supply. Global oil storages have shrank, but in the US, a country that isn’t part of the OPEC agreement, crude inventories have only substantially fallen for the first time in the week to April 7th.
There is also a wide difference between IEA, OPEC – and even within these groups – regarding the global inventories falling and how quickly they are expected to decrease. OPEC’s last report suggests that global oil inventories have actually increased by 430,000 barrels a day in the quarter that just ended. This means that at least according to OPEC, the world still has an oversupply of oil.
What will happen in the current quarter? It appears as if no one knows for sure. Both OPEC and the IEA expect a change in the second half of 2017, but that’s assuming that the cuts will be extended – and that is bound to be challenging for producers. In order to meet their commitments, many OPEC members – and those outside of OPEC – have moved forwards planned maintenance, which includes shutting down production. They won’t be able to repeat the maneuver again if they needed later on this year.
For energy traders the future of the cruse oil industry seems uncertain, but every change in price could mean an investment opportunity. Stay informed, follow market changes and take advantage of market volatility.
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