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Stock and commodities markets

No More Expensive Oil


Many oil-exporting nations have been joining efforts to push oil prices higher. Still, some experts believe that they shouldn’t count on higher oil prices since this is not going to happen.
 

 

 

 

For months OPEC nations together with some of their non-OPEC fellows have been trying to create an artificial deficit in the global market of crude oil simply by curbing their production and export. They still hope that this is going to bring oil prices higher over time. However, there has been no major rally in the market so far. This means that the OPEC+ agreement has been inefficient so far.
 
Despite their joined efforts, the global reserves of crude oil all over the world are still high. To be more specific, the current volume is well over 3 billion barrels, which is still above the level seen in late 2016. This is confirmed by the recent statement released by the IEA on Thursday. At this point, the OPEC is reported to have accomplished the agreement by 88% while the others are reported to have exceeded 125%.
 
OPEC+ Will Fail to Cause Oil Deficit
 
The IEA believes that the OPEC is going to fail in terms of creating the desired oil deficit to push oil prices higher. They say that even if the OPEC+ agreement is extended next year and the production level is still the same (currently at 32,8 million barrels), international oil inventories are not going to shrink as expected. Moreover, they say that the global market will go back to the oversupply of 800K b/d in early 2018, even despite the fact that 2017 is expected to see the biggest demand increase since 2014. The thing is that the will be new supplies to cover the growing demand. The same holds true for 2018. Even though the demand is expected to grow by 1,4 million b/d, it’s probably going to be covered by the crude oil coming from the USA, Canada, Brazil, and other nations not participating in the OPEC+ agreement.
 
While the OPEC is trying to urge American shale oil to be responsible and curb their production, the U.S. Department of Energy reports that the U.S. production of share oil has gone up by as much as 1.4 million barrels a day in 2017. American shale oil companies have benefited from the recent rally up to $50/b and higher. Bank of America reports that they have hedged their 2018 shipments, which means they are not afraid of near-term oil prices drops anyways. This will let them preserve their oil production even if the overall market situation gets significantly worse. The experts assume that American shale oil companies are going to increase their production by 800K b/d in 2018.
 
Apparently, all of that keeps on pressing down oil prices. FortFS reports that the Brent futures for December delivery dropped down a bit and are now trading below $58/b. The WTI futures for November Delivery are now trading around $51/b.

 

 

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