OPEC and other oil producers agreed at their Ministerial in Vienna on 25 May to an extension of supply cuts for nine months, up to the end of March 2018. Libya and Nigeria are exempt from the cuts, while Iran is permitted to retain its output target.
This meeting was preceded by hectic Saudi consultations with member- and non-member countries. On the eve of the Ministerial, Saudi minister of energy, Khalid A al-Falih had said that most participants are on board with the plan to rein in a global supply glut. The minister had also said that extending the supply cuts by a further nine months until next March, and adding one or two small producers to the pact, should reduce oil inventories to their five-year average.
OPEC's aim is to reduce global oil inventories to the industry's five-year average. While inventories held at sea and in producer countries have dropped, they remain high in consumer regions, particularly in Asia and the United States. Estimated inventories in industrialized nations totalled 3.025 billion barrels at the end of March - about 300 million barrels above the five-year average, according to the International Energy Agency’s latest report. Preliminary April data indicated stocks would raise further, the IEA said. Crude stocks stood at a record 1.235 billion barrels.
On 19 May, after the Saudi minister’s remarks, Brent crude prices increased by $1.10, or 2.1 percent, to reach $53.61, the highest settlement for the international benchmark since April 18. On 24 May, Brent closed at $ 53.96.
However, oil markets failed to be enthused after the announcement of the production cut extension: prices fell 3 percent after the announcement; on 29 May, Brent crude futures rose by just 14 cents, or 0.2 percent, to $52.29 per barrel. U.S. West Texas Intermediate (WTI) crude futures were 19 cents higher at $49.99 per barrel. Analysts believe that these cuts will not re-balance the market; they also doubt that OPEC will be able to ensure compliance with the cuts from its members.
Global oil demand is forecast to rebound in the second quarter of 2017 after a weak first quarter. On a quarter-to-quarter basis, global demand growth is expected to post the strongest gains in the third quarter: global oil demand growth is forecast at 1.3 mb/d on average, to 97.9 mb/d on an annual basis for 2017, unchanged from the IEA’s forecast in April. Based on current estimates, stocks are forecast to decline by 290 million barrels by the end of the year, bringing them to 2.73 billion barrels, just shy of the five-year average.
June 2, 2017