Venezuela says OPEC's task is stabilise oil market and force inventory-draw

Cheryl Sanders
May 26, 2017

"I don't think the cuts are enough for (OPEC) to reach their goal in a nine month period and this is reflecting that", said James Williams, president of WTRG Economics in London, Arkansas. But the intended impact could be short-lived.

"This time, however, the news was disappointing, with the Saudis unable to persuade their oil producing colleagues to cut more", he said. With crude prices above $50 a barrel from lows of a year ago, they are increasingly moving back into the market. Rising U.S. production could completely replace OPEC's output cuts of 1.2 million bpd by year-end, according to RBN Energy.

The world's major oil producers, led by OPEC's Saudi Arabia and non-OPEC Russia, agreed last November to cut output to remove a total of 1.8 million barrels a day from the market and extended their commitments past this June on Thursday. Opec sources have said the Thursday meeting will highlight a need for long-term cooperation with non-Opec producers. He spoke only on condition of anonymity because he was not authorized to divulge the information prematurely.

Earlier Khalid Al-Falih told reporters that a new member in the cartel will contribute an "insignificant change" to the distribution of quotas to reduce oil output.

Oil producers within and outside OPEC headed Wednesday towards an agreement maintaining cuts in output into next year after a joint committee recommended a nine-month extension.

Oil prices fell about 4 percent Thursday after news of the deal spread, with USA benchmark crude declining to US$49.17 a barrel.

Oil fell below $50 after OPEC stuck to the most predictable outcome at a meeting in Vienna.

"We very much are benefitting from the improved oil price, you know it went as low as $28 a barrel".

He said that seven weeks of USA crude drawdowns and a drop in floating storage were excellent news and that the long-term trend will be healthy.

The IEA calculates the cartel earned nearly $75 million extra a day in the first quarter of this year than in the last quarter of 2016, despite collectively cutting output to 31.9 million barrels a day from 33.3 million.

Brent has averaged $53.90 a barrel so far this year.

"This offsets almost half of OPEC's production cuts", it noted.

Had OPEC decided not to renew the production cuts, analysts had predicted that production from Saudi Arabia and Russian Federation would likely increase, putting negative pressure on prices. Crude prices are unlikely to rise substantially - and that means the era of windfall profits appears to be over for member nations, at least for now.

Financial information firm IHS Markit sees OPEC revenues showing a modest gain this year after dropping from their peak of $1.2 trillion in 2012. Oil prices dropped sharply ahead of the announcement.

The producers were expected to agree to the recommendation at a meeting at OPEC headquarters in Vienna on Thursday.

May 25 OPEC ministers were forced by Texas shale oil producers on Thursday to extend a supply cut into 2018, a regulator from the USA state said. Non-OPEC producers were scheduled to meet OPEC later in the day.

OPEC commentary will continue to be monitored closely ahead of a formal announcement later in the NY session with sharp moves in prices if there is deviation from the expected deal.

Other reports by iNewsToday