EMEA News
Hope of Deeper OPEC Cuts Dashed as Goldman, Russia, Forecast Crude Staying In The $40s
The vague hope against all reason of some analysts that the Organization of the Petroleum Exporting Countries (OPEC) would consider deepening its production cuts to accompany their extension has been dashed by the United Arab Emirates, which on Thursday stated the cartel has already "done their part" to reduce inventories.
Speaking at an International Energy Agency conference in Paris, Suhail Al Mazrouei, energy minister for the UAE, said, "There is no plan or talks" on further curbs, and added that increased demand in the third and fourth quarters will help rebalance the market.
While conceding that stockpiles have depleted more slowly than expected, he remarked, "OPEC countries and non-OPEC countries who joined us have done their part; we are looking for others to do their part as well, and we are not worried about the market recovery."
While few if any experts thought OPEC would follow through with deeper cuts, Mike Wittner, head of oil market research at Societe Generale SA, noted that the cartel is actually breaking from tradition in undertaking a production cutback extension only: "In the past if it didn't work, OPEC would adjust lower.
"It's a process: that's what supply management means."
Indeed, OPEC made three consecutive cuts between 1998-99 when demand tumbled, and again in 2008 during the global recession.
By most counts, the cuts this time around aren't working, given that crude has given up almost all its gains since OPEC and Russia launched their initiative to clear the global surplus; however, they are undoubtedly benefiting OPEC: Reuters reports that it has "earned the group $1.64 billion a day so far this year, up more than 10 percent from the second half of 2016," according calculations based on OPEC figures for average production and its crude basket price up to June 20.
Chakib Khelil, former oil minister for Algeria, said, "I expect the gains for OPEC to be higher during the second semester 2017 due to a tight market in the third and fourth quarter, despite an oversupply from non-OPEC not tied to the OPEC agreement and higher-than-expected production from Libya and Nigeria."
Fyfe of Gunvor believes the higher earnings might "persuade OPEC and Russia of the value of sticking with it, maybe cutting sufficient extra barrels to offset Libya and Nigeria increases and reaping the reward of higher overall 2017 revenues.
"But the politics of apportioning further cuts will get messy."
Meanwhile, market dynamics are such that in reaction to so many countries pumping all-out, Goldman Sachs now forecasts a three-month average of $47.50 per barrel for West Texas Intermediate, down from its previous estimate of $55.00.
Russia too is cautious in its outlook: Maxim Oreshkin, economy minister for the former Soviet Union, said Thursday at a government meeting that growing supply from Libya, Nigeria, and the U.S. "presents very serious risks" and that "keeping the level of $40 per barrel in real terms over the next three years looks more than reasonable."
Compared to other forecasts, $40 is generous: recently, Amrita Sen, chief oil analyst at Energy Aspects, predicted WTI could easily trade in the $30s: "It's like a falling knife, I wouldn't catch it right now; we've had people call us and say this is the worst sentiment they've seen in 20 or 30 years."
