OPEC May Extend Supply Cuts to Bolster Recovery in Oil Prices

Mar 21, 2017, 00:27
OPEC May Extend Supply Cuts to Bolster Recovery in Oil Prices

Of a truth, OPEC has recorded decent compliance levels in the output cut but an increase in USA shale oil production continues to keep the oil supply practically unchanged. U.S. WTI crude futures lost 0.78 percent, trading down 38 cents to $48.40 per barrel.

OPEC sources told Reuters in February that the group could extend the supply-reduction pact, or even apply deeper cuts from July, if inventories fail to drop to a targeted level.

However, if OPEC doesn't extend its deal, it could pressure crude oil prices. But an oil price rally after the deal has been hobbled by data showing persistently rising U.S. stockpiles.

Baker Hughes reported that in the week leading up to 17 March, US shale companies added 14 oil rigs, increasing the number of operating rigs to 631, the most since September 2015.

The refusal by Saudi and Russian energy ministers as well as the OPEC secretary-general to commit to an extension of the OPEC/non-OPEC cuts, a big question for the market as the producers' output curb agreements close in on the half-way mark, continues to cast a shadow over the prospects of a speedy draining of oil inventories and an accelerated rebalancing of the market.

The cartel spent two years prioritizing export volume over prices to corner the market and hit the booming American oil industry, but was forced to cut production as lower earnings led to a record budget deficit.

The U.S. benchmark slipped below $50 a barrel on March 9 as oil executives gathered in Houston for the annual CERAWeek by IHS Markit conference. "They will more likely opt for income and will push to get help from non-OPEC".

Lower crude oil prices have a negative impact on oil and gas producers' earnings such as Noble Energy (NBL), Chevron (CVX), Northern Oil & Gas (NOG), and Triangle Petroleum (TPLM). U.S. rig count has been increasing for nine consecutive weeks and latest forecasts show that USA shale output will continue to inch higher in April.

OPEC's latest monthly report showed global oil stocks in January rose to 278 million barrels above the five-year average.

At a Vienna meeting in May, OPEC will decide on whether to ditch, continue or widen production cuts. The EIA estimates that US WTI and Brent crude oil prices will average $53.5 per barrel and $54.6 per barrel, respectively, in 2017.