Oil-Related Developments - June 2017

Oil prices rebounded sharply in volatile trade on 13 June after earlier edging down as OPEC reported an increase in its production for May despite a supply cut agreement. Brent crude futures were at $48.49 per barrel, up 20 cents, while WTI was at $46.31 per barrel, up 23 cents.

Prices initially nudged higher in early morning trade after the world's top exporter Saudi Arabia outlined cuts to customers in July that included a reduction of 300,000 barrels per day (bpd) to Asia. But, OPEC's monthly report showed output from the group rose by 336,000 barrels a day in May to 32.14 million bpd, led by a recovery in Nigeria and Libya which are exempt from supply cuts. The report said the market was re-balancing at a "slower pace."

Meanwhile, U.S. drilling activity has continued apace, driving up U.S. output by more than 10 percent since mid-2016 to above 9.3 million bpd. Traders said market intelligence firm Genscape had forecast a draw-down of more than 1.8 million barrels at the Cushing, Oklahoma, delivery point for U.S. crude futures.

Crude has lost 10 percent of its value since late May, when OPEC announced that it would extend production cuts. Analysts are split on whether crude prices will improve in the second half of the year as oil prices continue to be under pressure from the persistent oversupply situation, made worse by a surprise increase in US petroleum stocks last week. It had been earlier predicted that oil prices would pick up during the later part of the year, with some saying crude oil prices could shoot up to US$70 a barrel by the end of 2017 as supply and demand levels continued to rebalance.

Analysts now forecast outlook for Brent crude oil at an average of US$50 per barrel this year, with prices remaining in the range of between US$48 and US$52 per barrel in the second half of 2017. Some commentators have suggested that OPEC could revise its current proposals and consider a deeper cut, if the weakness in the oil price continued.

 

June 17, 2017

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About the Author

Ambassador Talmiz Ahmed

Former Ambassador of India to Saudia Arabia, Oman and UAE, monitors developments in the West Asian region.  

Ambassador Talmiz Ahmad joined the Indian Foreign Service in 1974. Early in his career, he was posted in a number of West Asian countries such as Kuwait, Iraq and Yemen and later, between 1987 and 1990, he was Consul General in Jeddah. He also held positions in the Indian missions in New York, London and Pretoria. He served as Indian Ambassador to Saudi Arabia (2000-03; 2010-11); Oman (2003-04), and the UAE (2007-10). He was also Additional Secretary for International Cooperation in the Ministry of Petroleum and Natural Gas in 2004-06. In July 2011, the Saudi Government conferred on him the King Abdul Aziz Medal First Class for his contribution to the promotion of Indo – Saudi relations. After retirement from the Foreign Service in 2011, he worked in the corporate sector in Dubai for three years. He is now a full-time academic and holds the Ram Sathe Chair for International Studies, Symbiosis International University. He has published three books: Reform in the Arab World: External Influences and Regional Debates (2005), Children of Abraham at War: the Clash of Messianic Militarisms (2010), and The Islamist Challenge in West Asia: Doctrinal and Political Competitions after the Arab Spring (2013). He writes and lectures frequently on Political Islam, the politics and economics of West Asia and the Indian Ocean and energy security issues.