Russia's Novak says may discuss adjustments to OPEC deal at monitoring committee

  • Russia's Novak says may discuss adjustments to OPEC deal at monitoring committee

Russia's Novak says may discuss adjustments to OPEC deal at monitoring committee

That, in turn, is increasing supply and keeping a lid on price gains.

In an effort to reduce a global crude oil glut and boost prices, Members of the Organization of Petroleum Exporting Countries and non-OPEC countries, especially Russian Federation, reportedly decided on May 25 to extend cuts in oil production by 1.8 million barrels per day by nine months to March 2018. "They are still miles away from achieving their goal".

"Inventories have not yet come down. This shows there's not much more OPEC can do". OPEC could decide to return production to pre-cut levels as the cartel may not want to lose its market share and look to raise revenues through volumetric growth.

The credibility of this shift in Saudi strategy will be "easily monitored", said Roger Diwan, the oil analyst at consultant IHS Markit Ltd., who attended the OPEC meeting in Vienna.

"There has been little visible impact on excess stocks", Fitch analysts wrote in a report on Thursday.

Crude prices tumbled 5 percent following the decision on Thursday and extended losses on Friday. Once the threat of a cut was removed and the roll-over was confirmed, many of those long positions became unnecessary and were liquidated.

Rats said that's not how the cuts have played out because US producers, which don't participate in the agreement, have "responded by reactivating a staggering 246 rigs since November 2016-a more than 50% increase in the oil-directed rig count".

Investment bank Goldman Sachs fears the market will be once again over supplied when the agreement expires, delivering a "renewed surplus later next year if OPEC and Russia's production rises to their expanding capacity and shale grows at an unbridled rate".

On the other hand, India, the third largest consumer of oil, is contemplating importing oil from U.S. and Canada if OPEC countries continue the output cut. This is why Saudi cargoes to the recent months have totaled 1.21 million barrels a day - the highest rates since 2014, the year of the oil price crash.

"It's a bit of a headscratcher". The move also highlights heightened volatility in the oil market.

CFTC data showed that in the week ahead of the OPEC meeting, hedge funds raised bullish bets on US crude for the first time in five weeks. Normally, all this would be more than enough to trigger a bull rally. "All indications are solid that a nine-month extension is the optimum and should bring us within the five-year average by the end of the year".

While opinions vary about what will happen to the oil market next year, there is a general consensus that prices will be stable for the rest of 2017.

Daniel Fine, associate director of the New Mexico Center for Energy Policy, spoke at the Interstate Oil and Gas Compact Commission annual meeting in Oklahoma City earlier this month.

But that doesn't mean the delicate balance will last, especially if stronger prices encourage more pumping from American frackers. Some market participants had priced in more aggressive output cuts from the Organization of the Petroleum Exporting Countries and other producers. As a result, the OPEC nine-month extension was necessary and appropriate, but not a radical game changer that would spark a major oil price rally in the short run.

OPEC's appetite to extend cuts further into 2018 may be reduced if crude stocks remain resilient and market prices subdued.