OPEC likely to extend output cuts, but price relief elusive

May 25, 2017, 01:36

Oil prices were higher in European trading on Wednesday, trying for their sixth straight session of gains on the likelihood that OPEC will extend production cuts for another nine months when it meets on Thursday.

OPEC will discuss prolonging an original deal reached in December in which OPEC, as well as 11 non-member oil producing countries, including Russian Federation, had agreed to cut output by approximately 1.8 million barrels per day (bpd) in the first half of 2017.

Luaibi said he agreed with Saudi Arabia on the need for a nine-month extension.

Oil prices settled a bit higher on Tuesday as expectations of an extension to OPEC-led supply cuts overshadowed a White House proposal to sell half of US petroleum reserves.

And according to Commerzbank, rising USA production, which will reduce OPEC's market share, will make "discipline. gradually crumble" among its members to stick to the curbs.

But hopes quickly faded after a joint OPEC and non-OPEC committee recommended keeping the curbs unchanged for nine months.

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"The recommendation is to keep current quotas ..." "At this moment it is nine months..."

The US Congress created it in 1975 after the first Arab oil embargo caused fears of long-term spikes in motor fuel prices that would harm the US economy (really voters by making petrol expensive).

Benchmark U.S. light crude oil CLc1 increased by 20 cents at $51.67 & Brent crude oil LCOc1 was up by 25 cents a barrel at $54.40.

"OPEC has already achieved a lot".

"Make no mistake, it is all about oil revenues", said Bhushan Bahree, a senior director at consultant IHS Markit.

Following this cat and mouse game, the crude oi price has consolidated between mid-40s to 50, with OPEC keen to push it higher.

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The plan was released just a day after Trump left Saudi Arabia, Opec's de facto leader, following his first overseas state visit.

A powerful consortium of oil producers that includes Saudi Arabia and Russian Federation will try to goose lackluster oil prices this week with promises to extend previous output cuts for several months and perhaps into next year.

"I would go along with the majority", Zanganeh said. However, this most extreme bearish scenario is also probably the least likely outcome. In fact the reserve has been cut in the past two and a bit years by a handful of sales, the most recent being earlier this year when a total of 16 million barrels were sold under authorisations from former President Obama.

Surprises on Thursday are still possible. Non-OPEC nations Oman and Mexico also confirmed their support for prolonging the curbs through the first quarter of 2018.

OPEC has a self-imposed goal of bringing stocks down from a record high of 3 billion barrels to their five-year average of 2.7 billion.

"Gasoline demand is picking up in the United States, which also resulted in larger-than-expected crude drawdown despite higher oil production and imports", said Abhishek Kumar, senior energy analyst at Interfax Energy's Global Gas Analytics in London.

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