Oil rises almost 1 percent as OPEC defers extension of output cuts

27 September, 2017, 00:32 | Author: Celia Hoffman
  • Oil rises almost 1 percent as OPEC defers extension of output cuts

In the near term, demand could also see a lift as USA refineries restart after closure due to Hurricane Harvey.

This could mean that producers who use Brent as a benchmark will have to offer greater discounts in order to compete in Asia against US crudes. About a half million barrels of oil per day moves from a pipeline in the Kurdish region to a Turkish sea port and a frustrated Ankara reminded the Kurdish government that it was the one that controlled the tap.

"Returning fracking crews and the revival of uncompleted wells" mean USA shale output will probably grow by 400,000 barrels a day in the next four months, said Alexandre Andlauer, an analyst at AlphaValue SAS.

Meanwhile, there is an interesting wrinkle appearing in global oil markets: the price of Brent crude and West Texas Intermediate, the USA benchmark, are diverging. US storm damage and strengthening economies may have finally dislodged sentiment away from resignation to a future of low oil prices.

Platts is seeking feedback from the market by October 13.

Resurgent production from USA shale oil producers, who use advanced drilling methods, has played a major role in delaying the market rebalancing.

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Argus publishes prices for WTI Houston, WTI Midland, Mars and LLS in Asia. WTI hit 7-month high yesterday at the close of trade, at $52.22. On Friday it said the reduction had helped to lift oil prices by about 15% in the past three months.

"Erdogan's speech is a reason driving prices higher as the market worries there could be supply disruptions and that's getting priced in", said Michael Poulsen, an analyst at Global Risk Management Ltd. "OPEC's comments are also supportive". And the global demand picture looks promising: the International Energy Agency sees it growing by 1.6 million barrels a day in 2017, up from a June forecast for growth of less than 1.3 million barrels a day.

However, a private meeting Friday between OPEC and some non-OPEC members, resulted in no decision on whether to extend the agreement beyond the current end-date of March 2018. Not everyone agrees. Oil producers have been stepping up hedging activity as 2018 WTI prices rose above US$50 a barrel, according to analysts from Citigroup and BNP Paribas. That rally pushed the USA oil benchmark, WTI, up to more than $52 per barrel, while the global benchmark, Brent, rose above $59 per barrel.

Weekly data from the U.S. Energy Information Administration bear this out, with distillate demand up 9 percent so far this year compared with the same period in 2016, and inventories dipping below their 5-year average in last week's preliminary data.

Janet Kong, Eastern Hemisphere chief executive officer of integrated supply and trading at BP, said while rebalancing is underway, OPEC needs "definitely to cut beyond the first quarter" to bring inventories down and back to historically normal levels and to offset persistent overproduction from renegade members such as Libya and Iran.

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