Opec in for a surprise
london — When the Opec and Russia meet next month to assess the impact of their oil cuts they face a surprising outcome: stockpiles are even higher than when they started.
Inventories have started to decline, but by the time ministers gather in Vienna on May 25, developed nations still won’t have burned through the big stockpile increase caused by a surge in Opec output just before the cuts came into force, data from the International Energy Agency indicate.
The Organisation of Petroleum Exporting Countries has been “hoisted by its own petard” by agreeing in principle to reduce production last September while allowing members to keep boosting sales until the deal took effect on January 1, Citigroup said. While the group has fully implemented its pledged cuts, that’s being offset by US shale oil producers buoyed by price gains, according to Commerzbank.
“The Opec is like a magician waving his hands and trying to pull the rabbit out the hat, but still the rabbit isn’t there,” said Eugen Weinberg, Commerzbank’s head of commodities research in Frankfurt. “They’ve done all they can with the production cuts and the effect is close to non-existent.”
The accord last year between the Opec, Russia and 10 other producers was intended to boost prices by eliminating an inventory surplus of about 300 million barrels over the five-year average — equivalent to three days of global oil production. By this measure, the historic agreement hasn’t delivered. At the end of December commercial oil stockpiles in the 35-nation Organisation for Economic Cooperation and Development totalled 2.98 billion barrels, according to the Parisbased IEA. That rose to 3.06 billion barrels in January due to a late surge in Opec shipments before the cuts came into force.
“Producers unintentionally accelerated activities that would ultimately obstruct, and for a period reverse, the very rebalancing they were trying to accelerate,” said Ed Morse, head of commodities research at Citigroup. Meanwhile, Brent crude rebounded after the biggest slump in six weeks. Prices rose as much as one per cent in London, paring Wednesday’s 3.6 per cent loss.
Brent for June settlement climbed as much as 55¢ to $53.48 a barrel on the London-based ICE Futures Europe exchange and was at $53.38 at 10:37am in London. Prices slid $1.96, or 3.6 per cent, to $52.93 on Wednesday. The global benchmark traded at a premium of $2.13 to June WTI.
WTI for May delivery, which expired on Thursday, added as much as 48¢, or one per cent, to $50.92 a barrel on the New York Mercantile Exchange. The more active June futures gained 39¢ to $51.24 — Bloomberg