‘Oil price rally may have hit brick wall’
KUALA LUMPUR: Crude oil prices have likely hit a brick wall in their rally, after an astonishing bull run of almost 30 per cent in the first quarter, said OCBC Bank.
The bank said reduction of Iranian oil sanction waivers and a formal agreement in United States-China trade talks may still push the market higher.
But if the Organisation of the Petroleum Exporting Countries (Opec) chooses not to renew its supply curbs, the market may head south.
“We expect crude oil prices to be volatile in the second quarter and trade in a sideways range,” said OCBC Bank.
According to private estimates, Saudi Arabia would have hit its target of reducing output to 9.8 million barrels per day (bpd) in March from 11 million bpd in November last year.
The target was set in February and production data out of Saudi Arabia appears to suggest that the country might have hit this target by end-March, said OCBC Bank.
“We estimate Opec production last month at 30.33 million bpd, down two million bpd from November’s 32.31 million bpd. Of the two million bpd reduction, 1.2 million bpd of supply curbs were driven by Saudi Arabia, while 300,000 bpd loss was due to the Venezuelan crisis.”
The bank added that with Saudi Arabia not expected to restrict supplies further and Venezuela already producing below one million bpd, further Opec cuts were unlikely at this stage.
The crude market, therefore, may have to turn to other avenues other than Opec cuts if it wishes to sustain its rally.