What Saudi Arabia’s Oil Minister said in March will not happen, has happened: in a joint statement, Khalid al-Falih and his Russian counterpart Alexander Novak said that OPEC and Russia have agreed to extend the oil production cut deal struck at the end of last year until March 2018.
The news immediately sent prices higher, although the rise was capped by yet another weekly build in the number of active drilling rigs in the US, bringing the total up to 885 – an increase by 479 rigs over the past 12 months, along with production increases in Libya.
At around US$49 a barrel for WTI and US$52 for Brent, the benchmarks are basically where they were at the time the initial OPEC deal was announced. In the first few weeks after the announcement, prices spiked to US$55-56 for Brent and US$54 for WTI, but that didn’t last long: there was too much doubt among investors and traders that the deal would succeed.
In the beginning of the production cuts, the initial cause for worry was that some OPEC members would cheat as they have a history of doing so. As compliance continued growing at a steady, commendable rate, another problem came to the fore: US shale producers were expanding production in a no-nonsense manner. Crude oil inventories in the world’s top consumer were rising by millions of barrels every week and global stockpiles remained stubbornly above the five-year average.
This post was published at FinancialSense on 05/15/2017.