Oil production cuts succeeded but future cloudy

There is a danger of Opec, non-Opec members exceeding their vision due to current rally in oil prices, expert says

Opec and non-Opec member countries have fulfilled their vision by cutting production to support oil prices, an energy expert from S&P Global Platts said in Abu Dhabi yesterday.

“The oil price today is significantly higher than what it was thought a year ago and what it indicates is that Opec and nonOpec production cuts have fulfilled a vision that Opec and Russia had when they came together almost two years ago [but] there is a danger of exceeding the vision, which is what people are talking about in the market right now,” said Dave Ernsberger, global head of energy pricing at S&P Global Platts.

He also said the current oil price rally is really an important existential question for the Opec-non-Opec collaboration.

Unclear messaging

“Does it persist past June? Does it persist past the end of the year? If it doesn’t, what is the messaging around that? Oil inventories are almost back to [a] five-year average,” he added.

Oil prices are currently trading at three-year highs with Brent, the global benchmark, at $74.06 (Dh272.02) per barrel and West Texas Intermediate (WTI) at $68.40 per barrel when markets closed on Friday.

Production cuts by Opec and non-Opec member countries, and geopolitical tensions in the Middle East have been supporting oil prices over the last few months.

Speaking on the launch of yuan-denominated crude oil futures by China, Ernsberger said the futures contract on the Shanghai International Energy Exchange (INE) will undoubtedly help the cause of those who would like to see oil traded in yuan on the spot market globally but the bigger impediment to that will be the freedom with which the yuan circulates as a global currency itself.

“The first country which would be keen to trade in [the] Chinese currency would be Iran as they are not happy to be beholden to the US Treasury,” he said, adding that the launch of Chinese crude oil futures is a seminal moment in the history of oil trading.