Oil prices slip despite expected Opec extension of output cuts
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LONDON, Oct 12 — Oil prices slipped today as US fuel inventories rose and despite efforts by Opecto cut production.
Brent crude oil was down 20 cents at US$56.74 a barrel by 0730 GMT. US light crude was 25 cents lower at US$51.05. Both benchmarks have risen more than 20 per cent from their lows in June as world oil markets have tightened.
The Organisation of the Petroleum Exporting Countries and other producers including Russia agreed last year to reduce output by 1.8 million barrels per day (bpd) to prop up prices and the cuts, from January, have helped drain inventories.
The Opec-led deal helped lift oil from the US$30 to US$40 per barrel range in late 2016/early 2017. But traders say supplies remain ample despite these cuts, thanks in large part to surging US production.
As a result, Opec is widely expected to extend the cuts beyond the current expiry date of end-March 2018.
“Opec doesn’t really have a choice but to extend cuts unless they’re happy to risk sub-US$40 per barrel prices again,” said David Maher, Managing Director for energy at commodity merchant RCMA Group in Singapore.
With Opec-led supply cuts supporting prices, but rising US production capping crude, many analysts see markets balanced in 2018 and 2019, with Brent in a US$50-US$60 range.
“Currently, the main risks to upside are new Iran sanctions and Venezuela issues, while downside risks are Opec cuts not being extended or poor compliance leading to agreement breaking down, or weaker demand,” Maher said.
US President Donald Trump is threatening to impose sanctions on Iran less than two years after they were lifted under a 2015 deal between Tehran and leading world powers following Iran’s agreement to suspend its disputed nuclear programme.
In Venezuela, an Opec-member with huge oil reserves, an economic and political crisis is threatening production.
With rising US production undermining Opec’s efforts to tighten the market, inventories remain high.
US crude stocks rose by 3.1 million barrels to 468.5 million barrels last week, according to industry group the American Petroleum Institute (API).
Official US fuel inventory data is due to be published today by the Energy Information Administration (EIA).
“Our updated global supply-demand balance indeed shows peak stock draws in 3Q17,” Goldman Sachs said in a note to clients.
The US bank said oil supply and demand fundamentals meant it expected Brent to average US$58 a barrel in 2018. — Reuters