Market Either Tightening or in Need of More Cutbacks, Argue Experts Before OPEC Meeting

by Ship & Bunker News Team
Tuesday November 28, 2017

There's nothing like an impending Organization of the Petroleum Exporting Countries (OPEC) meeting to cause diverging opinions among analysts about the effect of the cartel's ministrations of the crude market, and two days before members convene in Vienna to discuss a possible crude cutback extension, experts are debating when market balance will be achieved.

Fatih Birol, executive director of the International Energy Agency, on Tuesday said "If we have strong demand growth and if producers continue to stick to their policies we may well see tightening of the markets... I expect this sometime next year, towards the second half of the next year...

"It's up to OPEC countries to decide what are they going to do, but what we see is that the market is already on its way towards rebalancing...therefore the price (of oil) that we have today, above $60, is a good number for most oil investments to be profitable."

Meanwhile, according to four OPEC sources, OPEC's national representatives and the group's secretariat have concluded that market will rebalance after June 2018 at the earliest, thus signaling the need to extend existing production cuts well into next year.

One of the sources said, "The best scenario would suggest third quarter for the rebalancing of the market," while a second source declared, "OPEC needs an extension until the end of 2018 to send the market a message that we are committed; OPEC will meet in June again and if the market is tight by then, they can always adjust supply."

As far as he's concerned, Amin Nasser, chief executive officer of Aramco, thinks global crude inventories are declining and supply and demand are in balance, and "What we are seeing today is that prices are in continuous improvement."

Any debate over the trajectory of the market would be incomplete without a reference to U.S. shale, and Suhail Al Mazrouei, energy minister for the United Arab Emirates, stated while voicing his optimism that OPEC will extend its cuts that shale oil represents only a fraction of global production and "is not an enemy to OPEC."

However, it's a big fraction the minister was trying to downplay: Energy Information Administration data shows that the U.S. is set to pump a record 9.9 million barrels per day (bpd) in 2018; OPEC pumped 32.6 million bpd in October.

To date, the only truly revolutionary opinion offered by an expert in advance of the November 30 OPEC meeting was voiced last week by Philip Verleger, president and founder of PK Verleger: he said OPEC "might actually want to increase production and let prices go down a little bit, to slow the advance of non-OPEC production."