EMEA News
Russia Looking for Smooth Exit from OPEC Cutbacks as Crude Trades Flat Before Christmas
Although oil on Friday eased from recent highs, the Organization of the Petroleum Exporting Countries (OPEC) was credited for helping support crude prices overall, with West Texas Intermediate settling up 11 cents to $58.47 per barrel and Brent settling up 35 cents to $65.25 per barrel.
But persistent rumours that exit strategies by members and allies from the cartel's extended production output reduction initiative are afoot could compromise market performance in the near future.
Analysts say OPEC's cutbacks have not only reduced inventories but also helped push up Brent by more than 45 percent since June this year, and investment bank Jeffries has raised its 2018 Brent forecast to $63 from $57, and its WTI forecast to $59 from $54, observing that "OPEC's extension of its production cuts through the end of 2018 is a necessary condition for continued inventory drawdown."
In the shorter term, another factor said to be affecting the market, but a negative fashion, is the expected return of the 450,000 barrels per day (bpd) Forties pipeline system in the North Sea as repairs on the structure wind down and a re-opening is anticipated for next month.
Scott Shelton, a broker at ICAP, mused that "I think the market is looking balanced overall but the risk remains to the upside in Brent spreads due to continued price appreciation.
"Traders who are flat and waiting for a dip will come in on the first trading day of the month in January in 2018 with a fresh P&L wondering if $60 WTI and $66 Brent are buys or not."
While price prognosticators are taking a well earned Christmas break, they do so on the heels of Alexander Novak, energy minister for Russia, telling Reuters that OPEC and the former Soviet Union will exit from the production cuts very smoothly, and in a manner that will not create any new market surplus.
In a statement presumably designed to assuage investor worries about Russia making a quick bolt for the door, he said, "There is a consensus among the (oil) ministers that we should avoid oversupply on the market when exiting the deal."
Novak also downplayed the U.S. influence on the global market, noting that he expected American oil output to grow by 0.6 million bpd in 2018 but that rising U.S. demand should help offset an increase.
Earlier this week, two OPEC sources contradicted recent statements made by Saudi Arabia by declaring that the cartel has indeed already begun working on a strategy to exit its cutback strategy, thus adding veracity to the argument from analysts that the exit could come at mid-point next year.
