Oil up by over 5.5% ahead of OPEC meeting

By all accounts, it appears to be a done deal - that's OPEC etending its oil production cut of 1.3 million barrels per day (bpd) in conjunction with 11 non-OPEC producers including Russia, who'll add around another 500,000 bpd, taking the headline cut nearer to 1.8 million bpd. 

The said cuts were set to expire in June, but could likely be extended to March 2018 if some soundbites coming out of OPEC are to be believed. The long bets are certainly rising, with both Brent and WTI futures ending last week up by over 5.5% on a week-over-week basis, comfortably above $50 per barrel level. 

The accompanying chart (see left, click to enlarge) tells its own story, ahead of OPEC's 172nd Ministers' Meeting in Vienna on 25 May which the Oilholic is heading to. That's all for the moment folks as another fascinating week awaits in Austria. Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on IBTimes UK click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com


© Gaurav Sharma 2017. Graph: Oil benchmark Friday closing prices from Jan 6, 2017 till date © Gaurav Sharma May, 2017.

OPEC’s cut is not an oil market panacea

Manic few weeks of travel and speaking engagements meant the Oilholic could not pen his thoughts on the Saudi-Russian agreement over the need to lower oil production, and other OPEC shenanigans sooner. 

Plus the last fortnight has given much food for thought news-wise, with the oil price registering a noticeable uptick (see chart left, click to enlarge).

Forget, the world’s two leading producers, it appears all of unruly OPEC is onboard for a production cut too, going by recent soundbites. But is it? Really?

For starters, while the market has been told there is consensus among the cartel's members about the need to cut oil production; details on how OPEC would go about it would only be provided on 30 November, after the conclusion of it’s next ordinary meeting. 

It implies that until December, everyone within OPEC can keep pumping regardless, ahead of its pledge to limit “production to a range of 32.5m to 33m barrels per day (bpd).” Seeing is believing, as the old saying goes.

Secondly, how is OPEC going to enforce the quota? That's something it has been particularly poor at going by recent form. The market has not been given individual members’ quotas since 2008, and OPEC's latest monthly report acknowledges the prospect of rising production from Libya and Nigeria. 

So assuming Libya, Nigeria, Iraq and Iran would not partake in either cutting or freezing production – will it be left to Gulf oil exporters, led by the Saudis, to cut production? The Oilholic finds that very difficult to believe, but stranger things have happened. 

Thirdly, will the latest attempt succeed and are the Russians really in agreement this time around? That is anybody’s guess, but if it fails – OPEC and Russia will have a serious credibility problem for the future, as it would be the third attempt at capping crude production this year alone to falter. 

For all intents and purposes, it appears both OPEC and Russia are aiming for a $60 per barrel oil price. If that is their aspiration, it would suit North American players just fine, whose pain threshold - in the Oilholic's opinion - happens to be around $30 per barrel. 

Anyway you look at it, non-OPEC production will rise. So such short-term overtures, should they materialise, are bound to reap only short-term rewards. That's all for the moment folks! Keep reading, keep it 'crude'!

To follow The Oilholic on Twitter click here.
To follow The Oilholic on Google+ click here.
To follow The Oilholic on IBTimes UK click here.
To follow The Oilholic on Forbes click here.
To email: gaurav.sharma@oilholicssynonymous.com