EMEA News
Support for OPEC Cutback Extension Grows, and Citi Predicts Brent Rebounding to Above $60 As a Result
Despite new tensions between the U.S. and Russia, and despite persistent charges that the Organization of the Petroleum Exporting Countries' (OPEC) cutback initiatives are in and of themselves not nearly enough to correct a market overly saturated with crude, both believers and skeptics in the analytical world are now enthusiastic about the prospect of the cuts being extended until the end of this year, which they believe will propel prices above $60.
Much of the enthusiasm was triggered by reports that Saudi Arabia will likely support prolonging the OPEC cuts; it will decide when OPEC ministers gather in Vienna on May 25.
Tim Evans, an energy analyst at Citi Futures Perspective, said, "We're watching the Saudis positioning themselves before OPEC gathers on May 25" - but a more surprising comment came from John Kilduff, long-time OPEC critic and founding partner with Again Capital, who told Bloomberg, "It looks like the Saudis want to extend the cuts, which was in doubt; it looks like they've had a modicum of success reducing global stockpiles and this is supporting prices."
Plus, the TASS news agency quoted Alexander Novak, energy minister for Russia, as saying that his country will soon start consultations with its own oil producers about the possibility of extending an output cut deal with OPEC.
OPEC is doing its part to encourage the optimistic mood, and according to average assessments of secondary sources the cartel uses to monitor its output, production under the cutback deal has averaged 29.757 million barrels per day (bpd) in March; it had pledged to reduce production by 29.804 million bpd.
If the cutbacks are extended to the end of the year, Citi Research believes Brent could rebound above $60 before the end of 2017; it added that an extension is needed "to avoid a credibility problem that is already emerging with lagging Russian output curtailment."
If an extension isn't agreed to, then Citi says the failure "could push prices back down to the low $40s by year-end."
But there are always wild cards to consider when analyzing the oil market, and the latest according to Kilduff is rising tensions with North Korea, as the U.S. threatens to act on its own in marginalizing the nuclear capabilities of dictator Kim Jong-un.
Kilduff first told CNBC, "The big number to watch [with crude] is $55-$25: that was the resistance point, the top of the previous range; if we break out above that, you have to bet that oil prices could easily then touch $60."
He then speculated that hostilities with North Korea will "crater" the South Korean and Chinese economies, "now you have all the major Asian economies on a war footing and not focusing on making refrigerators and all the other things that consume oil."
However, analysts overall have a dismal record in correctly predicting the impact of geopolitical events on crude; those focused exclusively on fundamentals maintain a strikingly different outlook, case in point: Phillip Streible, senior market strategist at RJO Futures, who recently remarked, "I think $53 is going to be the high end of the range; $47 if we just see the floor drop."
