Oil prices rise as OPEC ponders production cut extension
Oil prices will likely continue upward trends as the oil ministers of the Organisation of Petroleum Exporting Countries (OPEC) are expected to extend the production cut deal at their first meeting for the year in Vienna on Thursday.
The oil prices responded positively last week after the joint announcement from Saudi Arabia and Russia supporting a production deal extension.
Since the middle of this May, the price of the Brent crude crossed the $50 price mark and as at yesterday traded at about $54/barrel. Also, the WTI crossed the $50/barrel mark since mid-April.
Experts and analysts believe that the extension of the production cut by another 6 or likely 9 months will give more room for rebalancing of the stock which the organisation is set to achieve. Since November 30, 2016, when the group reached a decision to cut the production by about 2 million barrels at their meeting in Vienna, and the ‘Declaration of Cooperation’ with 11 non-OPEC nations on December 10, 2016, the prices keep trending positively.
He said it was important to appreciate that “the market rebalancing was never going to occur in a linear fashion”, but “slowly, steadily, and surely we are seeing light at the end of the tunnel.”
However, some experts are of the opinion that the move by OPEC and non-OPEC members to cut the production to achieve the rebalancing was a clever one, with higher oil prices in the international market the shale oil exploration is becoming more profitable gradually which has prolong impact on the oil future.
Reuters reports that some less “visible” storage areas are starting to see an uptick in inventory levels, a worrying sign that suggests the oil market is still oversupplied. For example, the more expensive region of Amsterdam-Rotterdam-Antwerp (ARA) is seeing a rise in crude storage because refiners are “clogged” with oil, an industry source said.
About 400,000 b/d of crude oil is also expected any moment from Canada and Brazil from projects that were planned years ago. The increase in supply could weigh on prices and complicate OPEC’s efforts to balance the market.
The first phase of production cut that is about to end any moment has achieved great deal for both OPEC and non-OPEC members. However, extension of the cut is necessary for the organisation to sustain the gains recorded and avoid the glut that is associated with the over-supply.