Oil market whipsawed as OPEC production discussed

Saudi Arabia’s energy minister says OPEC won’t extend its Global deal to curb oil production past this summer if other countries don’t do their part to cut output.

Saudi energy minister Kalid Al-Falih has described talk of peak oil demand, in the face of rising acceptance of electric vehicles and renewable energy schemes, as unsafe and misguided.

Hedge funds and other money managers cut their combined net long position in the three main Brent and WTI futures and options contracts by 61 million barrels in the week to February 28.

Chief executives from five hard-hit global oil producers – BP, Chevron Corp, Exxon Mobil Corp, Royal Dutch Shell and Total – will be listening closely to the ministers’ comments to see if those production curbs will be extended past their June expiration. Chevron (CVX) and ExxonMobil (XOM) appear in Goldman Sachs’s basket of 19 stocks that mutual funds are most underweight that are also important hedge fund shorts.

Barkindo praised the world’s biggest oil producer Russian Federation for participating in the deal, saying that Moscow “leads the other 10 non-OPEC countries” with a major contribution to the joint agreement. Wood Mackenzie expects USA independent producers to increase investment by more than 25 percent if prices stay above $50.

“Conformity by all member countries is going to be a criteria”, said Mr Falih, who added that some countries had yet to fulfil their pledges as part of the supply cut deal among global producers.

The outsized Saudi cuts have kept collective compliance high, offsetting weakness elsewhere.

Via a commentary on the bulletin, OPEC said the projection of Mohammed Barkindo, its secretary-general – that the world was about to turn a historic page in oil history – is now becoming a reality.

The deal will end at the end of the first half of this year.

In a remarkable about face, Khalid al-Falih, energy minister for Saudi Arabia, on Tuesday admitted what a large number of analysts have already stated: that oil inventories aren’t draining as quickly as expected despite the highly-touted production cutback initiative undertaken by the Organization of the Petroleum Exporting Countries (OPEC), now in its second month.

While he welcomes the return of investors to USA shale, Al-Falih also warned that shale was growing too fast, especially in short-cycle projects. U.S. oil output hit a low of around 8.46 million bpd in July 2016.

“We are witnessing the start of a second wave of U.S. supply growth, and its size will depend on where prices go”.

He wants to see producers shift toward longer-term investments, or else risk a supply crunch in the future, as long-term demand is expected to soar.

At the conference, Barkindo, along with International Energy Agency Executive Director Fatih Birol, raised concerns over the lack of investment in the oil industry in recent years.

HE Falih concluded by saying that the US shale industry is showing “green shoots of a recovery”, and he is cautiously optimistic about the future.

Oil demand will rise in the next five years, passing the symbolic 100 millions of barrels per day (mb/d) threshold in 2019 and reaching about 104 mb/d by 2022.