Crude Makes 3rd Straight Weekly Gain Despite OPEC Deferring Talk of Cutback Extension

by Ship & Bunker News Team
Friday September 22, 2017

Friday marks the end of a third straight week of crude gains, with West Texas Intermediate settling up 11 cents at $50.60 - this despite the much-ballyhooed meeting of the Organization of the Petroleum Exporting Countries (OPEC) that saw a deference of highly-anticipated discussions about extending its production cutback initiative beyond March of next year.

Brent rose 38 cents to $56.81 per barrel.

During the OPEC meeting in Vienna on Friday, Alexander Novak, energy minister for Russia, said no decision about the extension was expected before January, even though other ministers suggested it could happenĀ  before the end of this year.

Tony Headrick, energy market analyst at CHS Hedging, remarked, "It wasn't a strong surprise to see that they deferred that decision; regardless of the OPEC meeting's outcome, signs are that the market is moving toward balance."

Jim Ritterbusch of Ritterbusch & Associates believes the deferral is a wise strategic move because it leaves OPEC "some arrows in their quiver to throw something bullish at the market at their November meeting," if necessary.

What remains in the interim, however, is a stubbornly range-bound market despite Friday's positive performance, and this frustrates billionaire shale oil man Harold Hamm, who complained to Bloomberg that the U.S. government was too optimistic in predicting over 1 million new barrels per day in U.S. production and that this is "distorting" global crude prices.

He said, "We have capability of producing a whole lot, but you have to get a return on investment; that's where people have been this last quarter and this year," and he added that once it becomes clear that production estimates are off base, prices could rise to $60 per barrel.

Dan Pickering, chief investment officer at TPH Asset Management, told Bloomberg television that while the fear is the U.S. "is going to swamp the world with crude...I don't think there's enough capital being spent around the globe to really hurt oil prices."

However, he added that the U.S. "is in the driver's seat for the next couple of years," and that the oil market wants to see more discipline from the U.S. - and OPEC.

Meanwhile, other experts say that refinery demand and not OPEC is the key to keeping prices above the $50 mark: because the difference between crude and refined product prices remain wide, refiners have a reason to keep processing crude at a time when they're normally performing maintenance on their facilities.

However, John Kilduff, founding partner of Again Capital, says he is skeptical about reports of demand strength, and while he concedes that demand for refined petroleum products like diesel has been "remarkable," he warns that persistently high U.S production will continue to exert downward pressure on prices.

OPEC of late has caused traders to be schizophrenic, with optimism over the cartel discussing a cutback extension in Vienna resulting in a boost of crude prices earlier this week, and then a loss on Thursday as they worried that an extension may not be in the offing - or as much of a solution to the glut problem as initially thought.