Opec panel recommends 6-month extension of cuts

Cornelia Mascio
Aprile 25, 2017

But "until the trend, and specifically the pace of rising US production, slows or reverses, it will be very hard for oil prices to sustain any material gains in the medium term", said Tyler Richey, co-editor of the Sevens Report. "If this is temporary, it could be weathered, but it needs to be monitored". At 2:32pm BST, the Comex gold futures contract for June delivery was up 0.09% or $1.20 at $1,282.80 an ounce, while spot gold was trading at $1,282.80 an ounce, up 0.07% or $0.90. The negative structure is known in the industry as contango.

Russian Federation has also been boosting oil exports, despite cuts under the deal. That's up 13¢ from a month ago, and up 31¢ compared to 12 months ago.

"We have a noticeable increase in compliance from non-OPEC, which shows the importance of extending the agreement", al-Marzooq said.

Novak said that current oil prices are reflective of the oil market situation, with benchmark Brent prices now around $53 a barrel. OPEC has "done all they can with the production cuts" he added, "and the effect is close to nonexistent". But the group was a victim of its own success, as those same spreads forced crude out of storage, flooding an already weaker physical market with supply.

Traders and brokers also noted that crude markets were lower despite a relief rally over the French election, with the USA dollar.DXY noticeably weaker.

Among the factors behind the weakness, traders cited muted demand in Asia, saying Chinese independent refiners - known as "teapots" - have dramatically reduced buying after strong imports earlier this year.

Some market commentators see little need for Opec to extend the cuts. USA oil prices plunged the most in six weeks on Wednesday after US government data showed supplies remain plentiful.

On Wednesday, crude prices tumbled more than 3.5 percent as USA government data showed domestic crude stocks fell less than expected in the latest week and gasoline stocks posted a surprising 1.5-million-barrel build.

US production is soaring, jumping by nearly 10 percent since mid-2016 to 9.25 million bpd.

The upcoming OPEC meeting may prove ineffective, says Valentin Zemlyansky, director for energy programs at the Center of World Economy and International Relations of the Ukraine National Academy of Sciences.

The energy ministers, meeting in Abu Dhabi for the GCC Media Forum, agreed that they will seek consensus among all 24 countries participating in the deal, and if that is reached they will back an extension, although possibly for a period of just three months rather than another six months, according to Essam Al Marzooq, Kuwait's energy minister and the chief architect of the original deal, which commenced in January. It's too early to speak about this.

Khalid Al-Falih, Saudi Arabia's oil minister, told journalists on Thursday that the OPEC and other major suppliers have not achieved their aim of reducing oil inventories below the five-year historical average.

But prices on Monday received a respite after a panel of OPEC and other allied producers recommended an extension of cuts by another six months from June, a source said.

"The energy mix to produce electricity will change, today the kingdom uses large quantities of oil liquids, including crude, fuel oil and diesel", but added that investment in oil production must continue.

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