Opec mulls oil cut extension

"Oil has been unable to use the weaker USA dollar to continue its recovery rally from last week's three-month lows as rising U.S. production concerns continue to weigh upon the marketplace", said Henry Croft, research analyst at Accendo Markets.

Put simply, OPEC acted as a safety valve, it released the valve when there was growing demand or a major supply outage, and restrained it during periods of sudden demand weakness such as global recessions.

As can be seen from the above, Non-OPEC supply held at a around 52.5m barrels for the three years prior to the oil crash, from 2010 to 2013. "Any extension of the cut agreement should be with non-Opec producers". Production by all Opec members, including cut-exempted Nigeria and Libya, fell to 31.95 million bpd.

Crude oil prices and hedge fund positions seem to have reached a turning point about two weeks before the sharp drop in oil prices on March 8.

But things weren't all doom and gloom this week as far as inventories are concerned. The supply cuts triggered positive vibes for crude oil and investors were looking forward to booking gains once the output cuts restore a sense of balance to the market.

Russian Federation reduces oil output by 200000 bpd
Currently, investors are awaiting as OPEC may decide to extend the production cut beyond June this year. USA crude settled up 84 cents, or 1.7 percent, higher at $50.35 a barrel, after touching $50.47.

"I think oil is reacting still to the steady rise in the USA rig count and the realization that momentum is building to the downside from the repositioning of speculative interests in the market", said John Kilduff, partner at Again Capital in NY.

Through the first three quarters of 2016, US crude oil production trended downward, dropping from 9.2 million barrels per day (b/d) in January to 8.6 million b/d in September.

A large number of oil analysts still believes that Saudi Arabia would be able to persuade other Opec members to extend the deal past the six-month duration. EIA forecasts show that United States shale oil production is expected to rise again in April by 109,000 bpd to 4.96 million bpd suggesting that shale is surely making a comeback at this level of oil prices.

"The combination of falling imports and stronger crude runs should lead to substantial inventory cuts over the coming months", they said.

Brent was at $51.67 a barrel, down 9 cents, at 11:53 a.m. EDT (1653 GMT). Data reported late Tuesday by the American Petroleum Institute revealed a build in inventories of more than 4.5 million barrels. The fine print, of course, is - we wanted the price of oil higher and stable, so that we could plug the gaps in our oil-revenue-dependent budgets. There is always conflicting loading data and shipping schedules to contend with, and it's hard to pinpoint precisely how much oil each OPEC nation has heading out the door.

  • Darren Santiago