The Strategist

Analysts: US is putting the screws on oil prices


05/11/2017 - 13:59



The OPEC countries came to an agreement on extending the oil production restriction to the second half of the year, an Iraqi representative said. This agreement, according to some market participants, can cause significant damage to producers. Stabilization of the market and growing prices will become real if only the US, which once again increased production of shale oil, joins the freeze agreement.



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pixabay
Not only efforts of OPEC and independent producers to maintain oil prices can be useless, but they can also harm other players of the oil market. This view was expressed by the world's largest oil trader Vitol Group, reports Bloomberg.

According to the trader, demand for crude oil is not growing as much as expected, while shale mining in the US is exceeding forecasts. This situation, Vitol’s analysts say, is making heavier the burden on the world's largest producers, which must adhere to the promised production cuts.

Vitol Group stresses that the price of a barrel will not show the expected growth, unless the US, China and India join the agreement on limiting production.

The agreement on the limitation of oil production, concluded by OPEC countries and a number of the world's largest producers at the end of last year, failed to stabilize prices at $ 55 per barrel and above, not to mention the rise to $ 60.

Oil quotes have been showing great volatility not so long ago, moving in the range from $ 57 to $ 48 per barrel of Brent. In the afternoon on Wednesday at the ICE intercontinental exchange in London, July futures for Brent traded around $ 49.5, and at the beginning of trading on Thursday they have already gone up by $ 51.

The new US president, Donald Trump, has extensive plans for the oil industry development. So, Trump intends to allow drilling on the American continental shelf (the Atlantic and the Alaska shelf), which his predecessor, Barack Obama, banned before leaving the office.

Moreover, production in the US keeps growing. The output exceeded 9.27 million barrels per day by the end of April, which is 10% more than in the middle of last year. In addition, Trump announced his intention to refuse to purchase oil from the OPEC countries, which could possibly lead to release of additional volumes to the market. All these factors will undoubtedly put pressure on world prices.

The quotes may be supported by a decision to extend the production cuts agreement to the second half of this year. OPEC and independent producers should discuss this issue on May 25 in Vienna.

On Wednesday, May 10, Iraqi Oil Minister Jabbar Ali Al-Luiebi said that the OPEC countries have come to a consensus on an orientation toward extension of the agreement to freeze the oil production level. According to Al-Luiebi, this would lead to price stabilization, which, in turn, "will positively affect the Iraqi Budget".

At the same time, the main proponent of the agreement’s extension is Saudi Arabia, which has stated this more than once. 

source: bloomberg.com




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