From October (the month that Opec used for setting its production targets) to April, US production looks set to have risen by more than 500,000 b/d. and therein lies the current headache for Opec. The recent price slide is leading Canadian producers to revisit their spending plans, with “caution” now being stressed over “optimism”. Julian Lee is an oil strategist for Bloomberg First Word. Investors have been focusing on inventory data after OPEC said its cuts aimed to stabilize prices and draw down global stockpiles. “Rigs will be available in Canada”, he said.
But the main culprit is US shale, which according to the US Energy Information Administration (EIA), is surging back into the market-even though prices are dropping, they are still much higher than their 2016 lows. OPEC was assuming production growth within the United States, but that production growth estimate was ratcheted up in this latest OPEC report. It’s not optimistic but it isn’t like past year.
OIL prices dropped to their lowest in three months yesterday despite the Organisation of Petroleum Exporting Countries, OPEC efforts to curb crude output.Brent crude was down 11 cents, or 0.21 percent, at $51.26 per barrel, its lowest since November 30. Brent dipped to lows just below $50.30 before recovering as the premium over WTI increased to 6-week highs. Stochastic is also on the move down so crude oil could follow suit until it tests the support around $47/barrel.
“Coming after Khalid Al-Falih’s deliberate comments about compliance, his criticism of some other parties keeping up their end of the agreement, it feeds a narrative of Saudi backing away from the agreement”.
We expect the trendline support to hold, however, as the momentum is strong, we shall not go long right away. “It can get away from you”.
The American Petroleum Institute is also scheduled to release its report on USA crude and product stockpiles later today. If nothing is said, then oil could test some of the technical levels cited above. The OPEC deal is probably not sufficient to raise oil prices.
The deal between Opec and non-Opec producers, which was agreed late past year and aimed to curb production, appears to be having little effect on the glut at the moment, with three of the last four weeks showing substantial inventory increases. “It’s still going to be “drill, baby, drill” for the balance of this year”.
Indian refiners including Reliance Industries Ltd, operator of the world’s biggest refinery complex at Jamnagar, have returned as buyers of Iranian oil after having stopped imports from Iran during the sanctions period.