Oil Stable After OPEC Suggests Extraordinary Measures

Crude Oil

Ahmad writes that OPEC Secretary General Mohammed Barkindo has surprised many ahead of the upcoming OPEC meeting on November 30 in Vienna, by calling on US shale producers to join forces with OPEC in its ongoing battle to reduce the persistent oversupply of oil in the market.

In a deal aimed at clearing the glut, OPEC is curbing output by about 1.2 million bpd, while Russian Federation and other non-OPEC producers are cutting half as much, until March 2018.

The main global crude oil futures contract, Brent, was trading at around $56.83 in late morning London trading. The United States is not party to the deal, and its crude output has risen 10 percent this year to more than 9.5 million bpd.

But with strong oil demand growth, summer demand, and Brent futures flipping to backwardation, the OECD commercial stocks have started to draw down faster in the summer.

"This news shortly follows the historic visit of the Saudi King to Moscow, and we know that both of these nations are among the highest contributors to global oil production", said Ahmad.

In a further sign that the supply excess is easing, OPEC said inventories in developed economies declined by 24.7 million barrels in August to 2.996 billion barrels, 171 million barrels above the five-year average.

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The report also cited headwinds in 2018 for an expansion of supplies in US shale, such as lower drilling efficiency and cost inflation.

"The supply forecast for next year will be revised downward if higher oil prices and lower costs do not materialize", the report said.

Barkindo said the effort in part helped the energy sector emerge from the "most vicious of all oil cycles", with oil prices tanking below $30 per barrel past year on oversupply concerns. But analysts at JPMorgan said this was less of an issue, saying "concerns that OPEC compliance would fade into the fourth quarter now appear unfounded".

The U.S. Energy Information Administration said on Wednesday it expects U.S. crude oil production in 2018 to rise by more than previously expected.

He also said Nigeria and Libya, who were exempted from the pact, "are making progress towards full recovery" of production, after which they could join the OPEC-led agreement.

Should OPEC keep pumping at September's level, the market could move into a deficit next year, the report indicates.

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