OPEC Pullback Seen Continuing as US Shale Oil Rebounds Sharply, Says IEA

Reuters

Opec and its partners will meet on May 25 in Vienna to decide whether to prolong their supply cuts past June.

Brent crude slipped by 17 cents to $52.04 a barrel, while the United States crude oil traded at 16 cents lower than its last close at $48.91 per barrel, reported Reuters.

That boosted oil prices immediately after the data, with West Texas Intermediate crude futures bouncing to a high of $49.50/bbl before retreating modestly. Russian Federation on Monday joined with lead OPEC member Saudi Arabia in calling for reductions to be extended through March 2018.

The oil market has essentially reached a balance and will continue to accelerate in the near term, the International Energy Agency (IEA) said in its monthly report published Tuesday, just nine days before OPEC's much anticipated ministerial meeting. EIA information showed distillate stockpiles, which include diesel and heating oil, were down by 1.9 million barrels, versus expectations for a 1.1-million-barrel decline.

At the same time, the attempts to curb production has encouraged American drillers to pump more, maintaing the oversupply and countering expected price rise. US crude stockpiles fell by 1.8 million barrels vs. a drawdown of 2.4 million analysts were expecting.

"The most closely watched data point on the supply side is USA crude production", said researchers.

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But market watchers are growing more confident that OPEC, Russia and other big producers will extend cuts of nearly 1.8 million barrels per day (bpd) until the end of March 2018.

Even a "drastic" downward shift in the market conditions won't lead to a rapid collapse of USA oil production, according to Rystad Energy. "The extension alone should result in deeper cuts", he said, stressing that USA production would stop the rebalancing of the market this year.

USA crude imports rose 577 Mbbl/d last week, while exports rose 400 Mbbl/d.

But government figures on Wednesday showed the first week-to-week drop in domestic oil production since February, a development which also helped lift crude prices this week and get light, sweet crude back toward $50.

Thomas Finlon, director of Energy Analytics Group LLC, added, "There's room for guarded optimism: OPEC appears to be close to an agreement to roll over the cuts, and USA inventories are finally starting to decline".

The report said: "If the production cuts were to be extended, the participating countries would lose further market shares, which they are hardly likely to accept for any length of time".

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