Oil Prices Fall...Yet Again

A female employee fills the tank of a car at a petrol station in Cairo
A female employee fills the tank of a car at a petrol station in Cairo Egypt
Author

11 January, 2017

Oil futures fell Monday as record-high exports from Iraq's southern crude terminals and rising USA drilling activity sowed doubts over the effectiveness of OPEC's agreed supply cuts.

Brent crude futures, the global benchmark for oil prices, were trading at $55.20 per barrel at 0827 GMT, up 25 cents, or 0.45 percent, from the previous close.

This raised concerns that United States production is increasing and undermining efforts by the Organization of the Petroleum Exporting Countries (OPEC) and others to cut output.

Crude oil futures were steady Tuesday morning amid mixed signals on OPEC's supply quotas.

"Concerns about the impact of rebounding USA oil production are likely to limit oil's ability to rise too quickly", Robbie Fraser, commodity analyst at consultant Schneider Electric SA in Louisville, Ky., said in a note.

"For prices to push higher, we need verification that OPEC and Russian Federation have cut production and decide to keep it there for more than a week or two", said Gene McGillian, senior analyst at Tradition Energy.

Iran's oil exports, which reached close to 3 million barrels per day in 2011, fell to a little more than 1 million bpd after tougher sanctions were imposed in 2012 targeting its nuclear program.

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Production data from major OPEC producers won't be available until mid-February, leading most market watchers to predict prices will be more volatile than usual as snippets of information regarding the cuts are released by the media over the next six weeks.

The OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Rabi Light (Gabon), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela).

The high price extended to $53.83.

Still, that wasn't enough to revive prices after Baker Hughes on Friday showed that US drillers added rigs for the 10th-straight week to the highest level in a year.

Despite concerns that Iraq may not be able to cut its production by more than 200 MBOPD, Iraq Oil Minister Jabar Ali al-Luaibi said Thursday that the country still stands behind the OPEC deal. "Our 2017 estimate assumes a 5-10 per cent increase in spending from NOCs, offset by declines for all other customer types which are expected to see declines for a 3rd straight year", said Barclays. Should oil prices reflect this changed dynamic then, conceivably, by OPEC's next ministerial meeting in June, the group could be congratulating itself on a job well done.

There is scepticism in the market that the production cuts will happen, but Wahab is taking a contrary view, and expects OPEC to push ahead with the agreed reduction in supply.


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