Today’s OPEC Meet May Set Floor For Crude Prices For The Near Term

Today’s OPEC Meet May Set Floor For Crude Prices For The Near Term

Oil prices failed to move higher last week and the upward momentum faded in the light of increasing Opec output. US oil production also continued to inch up while US oil inventories fell across the board. The focus of the markets this week will be on the meeting between Opec and partners in Russia to review the deal.

Negative headlines continue to hit oil prices and oil has failed to meaningfully move higher in recent weeks. Estimates suggest that Opec oil output may cross 33.0 million bpd in July on the back of increased output from Libya and Nigeria. Opec output has been edging higher in the last couple of months and June production was higher by 0.5 mbpd to 32.7 mbpd, a six-month high. The re-balancing process remains slow and resumption in Nigerian and Libyan output has complicated the Opec strategy.Nigeria. Opec output has been edging higher in the last couple of months and June production was higher by 0.5 mbpd to 32.7 mbpd, a six-month high. The re-balancing process remains slow and resumption in Nigerian and Libyan output has complicated the Opec strategy. Nigerian production is back at a 17 month high of 2.0 mbpd while Libyan output has nearly tripled from last year with production nearing 0.95 mbpd.  This roughly translates to an increase of about 0.4-0.5 mbpd from these two and negates nearly half of the Opec’s 1.2 mbpd cut. In this context, the Opec meeting this week will be very crucial. There are reports that Libya and Nigeria may not be asked to limit output until their production stabilises. This is a negative from the price perspective as it could lead to increased OPEC output in the coming months.

US oil production also continues to edge higher and weekly data from EIA shows that total US oil production is close to 9.43 million bpd, the highest since August 2015. EIA forecasts show that US shale oil production is expected to rise further and touch a record high in August. The EIA drilling productivity report shows that shale oil output will likely touch 5.58 mbpd in August. To put this in perspective, in the downturn of 2015-2016, shale oil output fell from a peak of 5.46 million bpd in March 2015 to a low of 4.75 million bpd in December 2016. Since January 2017, shale production has started to edge up and is now at a new peak. The EIA also forecasts total oil output to reach a new record and surpass 10.0 mbpd next year. This is going to remain the biggest head-wind for oil prices.

The upside for prices will also remain capped given that physical markets remain oversupplied and inventories remain elevated. Despite Opec’s attempts to lift prices, oil is trading near 8-month lows as fundamentals remain unsupportive. Non-Opec supply forecasts also continue to be revised upwards. The IEA sees Non-Opec supply growth of 1.4 mbpd next year compared to demand growth of 1.4 mbpd. The revisions have been largely prompted due the fast rebounding shale oil production in the US. At 764 rigs, US oil rigs have more than doubled from the same time last year and point to more increases in oil output.

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Source Link – ET

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