EMEA News
Crude Prices Drop Over Russian Oil Output Cuts Stalling in Second Month of the OPEC Initiative
More bad news for the Organization of the Petroleum Exporting Countries (OPEC) oil cutback initiative came Wednesday when data from Russia's energy ministry revealed that its February output remained unchanged from January at 11.11 million barrels per day (bpd) - meaning so far Moscow has delivered just one third of the cuts it promised when the agreement was ratified late last year.
Market reaction was swift, with West Texas Intermediate settling down $1.22 at $52.61, the biggest one day loss since January and a three-week low; Brent dropped $1.29 to $55.07.
The news follows a week of disclosures about everything from a swelling U.S. shale stockpile to Saudi Arabia being unable to regain its pricing power in Asia - all of which underscores the OPEC agreement's failure to stimulate the market to the degree its members hoped, despite persistent rhetoric from the cartel that the cutbacks are a success.
Ole Hansen, head of commodity strategy at Saxo Bank, told Reuters, "There is a very stale smell hanging over the market; I still see the risk of $50 a barrel before $60 on Brent."
But he added that he has "to acknowledge that we have so far seen very limited selling appetite."
Another fundamental problem of the OPEC agreement (beyond the fact that its total cutback target is a mere drop in the bucket compared to the size of the global glut) is that Saudi Arabia has done most of the heavy cutting, beyond its promised target, in order to compensate for members such as Iran who have refused to do anything but boost their output to record levels.
Tim Evans, energy futures specialist for Citi Futures, said in a note, "While constructive, we continue to view Saudi Arabia's willingness to sacrifice market share beyond its commitment to OPEC as more of a temporary sprint than a more sustainable effort."
Once again on Wednesday, talk resurfaced about the OPEC deal being extended past its June expiry to the end of 2017: this time, Alexander Novak, energy minister for Russia, told Reuters said it was possible, but "It is premature to talk of what we will discuss in April-May"; plus, he stressed that Moscow is unlikely to agree to more cuts if other non-OPEC producers don't follow through on their own reduction promises.
He added that if the extension doesn't happen, Russian oil output for 2017 might rise to between 548 million and 551 million tonnes (11.07 and 11.07 million bpd); last year's output was 547.5 million tonnes.
Earlier this week it was reported that slightly more than a month of production cuts has resulted in OPEC losing about 5 percent of its market share in Asia, from 10.4 million barrels in October 2016 to over 35 million barrels in February of this year.
