Recent rising oil prices are set to continue. The price increases have been supported by a belief that the upcoming OPEC meeting in Vienna will decide to continue the current production curb. It is expected that the oil output cut will be extended to beyond the end of the year and into March, 2018.
Brent futures increased 19 cents (0.33%) from the previous close by 0652 GMT Wednesday. This led to a new price of $54.34 per barrel. US West Texas Intermediate (WTI) rose by the same 0.33% (17 cents) to $51.64 per barrel. These benchmark prices have increased by over 10% over their May lows of below $50 per barrel.
OPEC meets today – May 25, and the supply cut of 1.8 million barrels per day will be the main item on the agenda. Oil stocks are still too high for OPEC’s liking, and also that of Russia, the major non-OPEC oil producer along with the USA. OPEC is aiming for an oil stock level equal to the recent five-year average level.
At the current level of cuts, some believe that the policy would achieve no more than a balanced market for 2017. After that, oil stocks would return to a higher level and falling oil prices would once more become an issue. However, it is also believed that the increase in stocks would not be as high as in the past three years.
US oil production has soared by 10% from mid-2016 to $9.3 million per barrel. US shale oil production is also having an effect on prices. In fact, exploration for shale deposits and fracking has tended to affect the traditional oil markets. While rising oil prices would suit producers, the current trend is downward. The US search for new sources and the shale oil industry are not conducive to reducing oil stocks.
Saudi Arabia, OPEC’s largest oil supplier, has stated that it wants oil to reach $60 a barrel this year. President’s Trump has proposed the sale of half his country’s oil stockpile (the US Strategic Petroleum Reserves) between 2018 and 2027. After an initial flurry of discontent, it has been calculated that this would involve just 66,000 barrels per day to 2020, than 110,000 bpd to 2027. This year, would involve just 25,000 barrels per day.
This is a drop in the ocean compared to OPEC’s reduction of 1.7 million barrels per day. It would have little effect on rising oil prices. In any case, it is believed unlikely for the plan to be approved by Congress. The biggest effect for now will be the extension of oil production cuts by OPEC and Russia till the end of March next year.
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