EMEA News
OPEC Allies Adjust Their Opinion About When Market Rebalance Will Happen
One of the mantras behind the push for the Organization of the Petroleum Exporting Countries (OPEC) to extend its production cuts was that supply and demand had largely been rebalanced thanks to the first wave of cuts, and that further restraint would complete the rebalance - but now that the extension has been ratified, OPEC and its allies are painting a different picture of market conditions
Alexander Novak, energy minister for Russia, said, "At present, we believe the third quarter [of 2018] could be the period when the market rebalances; however, at the moment this has not been precisely predicated on hard proof."
CNBC noted that this is also the view taken by Saudi Arabia, which repeatedly insisted OPEC's efforts had largely solved the supply glut.
John Driscoll, chief strategist of JTD Energy Services, suggested that the rebalance, which he says is already taking place, is extremely vulnerable to upset, specifically in the form of a recovery happening too quickly, prices rising beyond expectations, and the U.S. responding by boosting production - which would flood the market once more and depress prices.
Victor Shum, vice president, energy for of IHS Markit, agreed that a rise in non-OPEC oil could depress prices in 2018 and added that geopolitical risk in the form of Venezuela's complete economic collapse or sanctions being reimposed upon Iran "would be the surprises" that could also cause market chaos.
Shum described the global oil market as "very fragile" and that it wouldn't surprise him if crude climbed to $70 "if we have some real signals of supply disruption."
Of course, not everyone is fearful for the future: Vagit Alekperov, chief executive of Lukoil, said global demand is rising fast (to the tune of 1.8 million barrels per day next year) and therefore markets won't overheat as they have done in the past; he also credited OPEC for having "created a mechanism which really controls a large chunk of production, which properly coordinates output and it works."
Goldman Sachs Group Inc. is also placing faith in the cartel, praising it for pledging to be "agile and responsive" with regards to winding down its output curbs and reviewing its progress on shrinking inventories at a meeting in June.
This indicates a reduced risk of both unexpected increases in supply as well as excess draws in stockpiles, according to Goldman.
Prior to the media hoopla that built up to OPEC's Vienna meeting this week, the analytical community was doubtful that a true supply and demand rebalance would happen anytime soon; in fact, Fatih Birol, executive director of the International Energy Agency, went on record as stating that the U.S., Canada, and Brazil would bring a "decent amount of oil" to a still-saturated market in the near term and that while rebalancing "may be underway, this way may be longer than we think."
