"Opec's ability to control oil price 'diluted' by US" - Cantor Fitzgerald Europe

Claudine Rigal
Mai 29, 2017

Goldman Sachs warned the biggest risk to oil markets was what would happen next year, at the end of the OPEC-led production cut.

U.S. West Texas Intermediate or WTI Crude futures were trading 0.45 percent higher at $49.12 on the New York Mercantile Exchange as of 5.55 am EDT.

The market was also disappointed OPEC did not mention its previously stated plan to bring stocks down from a record high of 3 billion barrels to their five-year average of 2.7 billion, said Olivier Jakob from the Petromatrix consultancy. The decision was disappointing as investors were expecting longer or larger cuts, possibly for 12 months. That, in turn, is increasing supply and keeping a lid on price gains.

The drop in oil prices "is a function of a corner of the market that remains skeptical on the impact of OPEC's cuts".

Minister in Prime Minister's Department Datuk Seri Abdul Rahman Dahlan, after a meeting between OPEC and non-OPEC countries in Vienna, Austria yesterday, said this was part of its effort to stabilise global oil prices.

European stocks were in the red Friday, putting the regional benchmark on track for a weekly decline, with oil and gas shares pulled lower on disappointment stemming from OPEC's agreement to extend production cuts.

"There seems to be a little resistance on the price at $55/bbl, but if OPEC members and a selection of non-OPEC members, notably Russian Federation, abide by the supply cut, the price could conceivably hit $60/bbl by year-end".

Brent crude, the worldwide standard, rose 3 cents to $51.49 a barrel in London.

"OPEC looks at shale and it scoffs", said Dave Purcell of Tudor, Pickering, Holt & Co, a US shale investment bank that attended the OPEC meeting for the first time. USA shale production requires a higher price to be profitable compared with traditional crude oil.

United States oil production has already risen by 10% since the middle of 2016 to over 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia.

This said, the agreement would likely succeed in preventing prices from returning to the rock bottom levels seen at the start of past year.

Competition from the USA shale has toughened and is threatening OPEC's monopoly.

"If we get to a point where we feel frustrated by a deliberate action of shale producers to just sabotage the market, OPEC will sit down again and look at what process it is we need to do", said Nigerian Oil Minister Emmanuel Kachikwu.

"This is half of the roughly 1,800 million barrels per day taken off the market by the OPEC-led cuts", said the analysis.

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