The oil price scenario remained volatile largely because the OPEC and non-OPEC cuts in production, announced in November last year, have failed to make a major dent in oil inventories, even as US rig counts have continued to increase steadily. Oil prices fell to their lowest in six months on 5 May, when Brent went to $ 45. Both Brent and WTI rose sharply to over $ 48 (Brent) and over $ 45 (WTI), following Saudi Arabia’s OPEC governor’s statement that: “There’s an emerging consensus among participating countries on the need to extend the production agreement reached last year.” Oil analyst Fereidun Fesharaki has said that OPEC was certain to extend the cuts when its ministers met on 25 May. He added that OPEC would need to keep limiting production until as late as the end of 2018.
At an oil conference in Kuala Lumpur, Saudi energy minister Khalid al Falih said on 8 May that the oil market is improving from early last year when markets were at a low. Stockpiles at sea have declined and U.S. inventories will continue their downward trend, he added. Global demand, meanwhile, will probably be stable from the “healthy rate” seen last year, driven by China and India, the Saudi minister said, adding that Asia was the most important market. There’s about 20 million barrels a day of combined demand growth and natural oil-field output declines that need to be offset, Al-Falih said. “No matter how fast U.S. shale grows, it won’t make a dent in that number,” he said.
OPEC, in its monthly report released on 11 May, has forecast that non-OPEC oil production in 2017 will be 950,000 b/d instead of the 580,000 b/d it had projected earlier. Most of this production will be US shale oil, estimated to rise by about 600,000 b/d this year. However, contrary to present trends, Goldman Sachs have noted that the oil market is rapidly re-balancing, while IEA has predicted that, with OPEC and non-OPEC cuts in production which will go into the second half of this year, demand could exceed production. Goldman Sachs has projected prices in the fourth quarter at $ 57 for Brent and $ 55 for WTI.
May 16, 2017