Americas News
Prospect of Extended OPEC Cuts Causes US Crude To Hit 4-Week High
Even though oil experts say the Organization of the Petroleum Exporting Countries (OPEC) needs to deepen as well as extend its cuts in order for its reduction initiative to have any beneficial market effect, traders on Friday responded to the likelihood of an extension alone and caused West Texas Intermediate to settle up 98 cents to $50.33 per barrel - the first time it has settled above $50 in over a month. Brent rose $1.10 to $53.61.
Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said hedge funds expect the crude glut to recede: "Time and again they are rebuilding long positions; there seems to see this persistent bias to buy on the dips....they're not getting bearish, they're coming back in."
This is despite Baker Hughes reporting that U.S. drillers added oil rigs for an 18th consecutive week, the second-longest streak of weekly additions on record, and the International Energy Agency this week calculating that inventories in industrialized nations totaled 3.025 billion barrels at the end of March - about 300 million barrels above the five-year average.
John Kilduff, founding partner at Again Capital, told BloombergMarkets that "The focus is intensifying on what OPEC will do next; the prospect of longer cuts and a larger size are like a shiny object dangling in the sea."
Indeed, OPEC sources who have been in talks leading up to the cartel's official meeting next week in Vienna teased that deepening the cuts is indeed an option and will be discussed, but they told Reuters "We have not agreed on final scenarios."
Virendra Chauhan, oil analyst for Energy Aspects, says market conditions and expectations are such that OPEC will "need to go with shock and awe tactics; a simple rollover of the deal the market will not buy into."
Speaking on CNBC, Chauhan added that concerns over global demand growth warrant ongoing attention, as does geopolitical risk.
Still, there are no end of experts who foresee good times ahead regardless of troubling fundamentals, and this week the loudest spokesman in this camp was Giovanni Staunovo, an analyst at UBS Group AG, who declared, "We still expect prices to move to $60 over the coming months because the oil market will be in a deficit as supply growth will lag demand growth."
Bill Baruch, chief market analyst at IITrader, earlier this week argued that OPEC extending its cuts will merely cause the U.S. to overtake their cutback rate, thus swelling stockpiles and further reducing prices.
