Market Flat as Traders Shrug off More OPEC Talk That Its Crude Cutbacks Are Working

by Ship & Bunker News Team
Tuesday October 10, 2017

The Organization of the Petroleum Exporting Countries' (OPEC) relentless efforts to persuade nations that its crude cutback efforts are returning supply and balance to a normal ratio failed to overly impress traders on Monday: West Texas Intermediate rose 29 cents to settle at $49.58 per barrel, while Brent climbed 17 cents to settle at $55.79.

Michael Hiley, head of over-the-counter energy trading at LPS Partners, said the market will likely continue to react indifferently to OPEC news until the cartel officially agrees to extend its cuts beyond the Match 2018 expiry date; meanwhile, "It's kind of a day of indecision."

The indecision was presumably helped along by news that contradicts OPEC's feel-good promises of demand catching up with oversupply: U.S. producers boosted crude production to 9.56 million barrels per day in the week ended September 29, the fourth straight increase since Hurricane Harvey forced some Texas wells to shut down.

Gene McGillian, a market research manager at Tradition Energy, remarked, "With rising production levels and no definitive word from OPEC and the Russians that they are going to extend the cut or deepen it, the rally seems to have lost its momentum," and he added that the market is "waiting to see what the next shoe to drop is now."

For the record, on Sunday Mohammad Barkindo, secretary-general of OPEC, said in India that "extraordinary measures" may be required to sustain a re-balancing process he believes is underway; this was followed by Saudi Arabia claiming it will limit November allocations of crude by an "unprecedented" amount.

Barkindo didn't elaborate on what these measures may be, although Russian President Vladimir Putin last week said his country is open to extending the cut deal to the end of 2018.

For his part, Suhail bin Mohammed al-Mazroui, energy minister for the United Arab Emirates, said he is hopeful producers will reach consensus on a cut extension when OPEC formally meets in November, and when asked if any new members would join the cuts for 2018, he replied, "all is on the table: the roll over on how many months...I'm hopeful."

For the time being, OPEC's announcements are ringing hollow in some quarters: Jackie DeAngelis, host of CNBC's Commodities Tomorrow, noted that the various factors that could cause crude to test lower in coming weeks includes the cartel itself, given that it posted a crude production increase of 10,000 barrels in September: "Not really a significant amount, but this is a cartel that promised the market a cut, so we're definitely moving in the wrong direction."

Last week, Ian Taylor, CEO for Vitol, predicted that rising U.S. exports will put pressure on crude prices in 2018 before possibly recovering towards $60-$65 per barrel over the next two to three years.