EMEA News
More Cutback Extension Lobbying from the Saudis Triggers Wave of Analytical Optimism
Yet more circumstantial evidence supporting the notion that the Organization of the Petroleum Exporting Countries (OPEC) will extend its crude production cutback for the duration of 2018 came this week, in the form of Mohammed bin Salman, crown prince for Saudi Arabia, telling Bloomberg that "of course" he supports the extension.
Another indication the extension may be a done deal: Alexander Novak, energy minister for Russia, said he plans to discuss a possible extension with Khalid al-Falih, energy minister for the Saudis, in early November (however, Novak also promised that if an extension isn't agreed upon, his country will increase its oil output by 3.5-4.0 million tonnes in 2018).
The sheer volume of hints pointing to an extension from so many quarters seems to have won over Phil Flynn, senior market analyst at Price Futures Group Inc., who said, "The OPEC story is definitely supportive [and] you've got to say they have earned back the market's respect.
"They have gained credibility by compliance."
Flynn's remarks were buttressed by Keisuke Sadamori, director energy markets and security for the International Energy Agency (IEA), who said overall compliance with the OPEC-led output curbs is 85-86 percent overall since January, "which is quite good compared to efforts in the past"; he added that "stock has gradually been getting closer to the normal level," and "we're also seeing solid demand growth."
But Flynn cautioned that "shale oil producers are going to raise production: there are still some doubts in the market."
Alarm bells have gone off in some analytical quarters over rumours that OPEC is also plotting an exit strategy while mulling over the extension, but Ben Sharples, reporter for Bloomberg News, noted that this has nothing to do with abandoning the cutback deal prematurely; instead, such a strategy will be "very important for the market....it seems there will be an extension, but the exit strategy shows that OPEC is thinking about life after the cuts and how not to shock the market...the market will probably take that as a good step."
For his part, Ted Seifried, vice president of Zaner AG Hedge, told Bloomberg that he believes OPEC is likely to extend its cuts through 2018, and he noted that "this comes just days after the Saudi oil ministers said he'll do whatever it takes to get production back to five year average levels" - all of which "will add support to the market."
Flynn's glowing comments about OPEC notwithstanding, not everyone is swayed by the cartel's performance: even though their actions seem to border on schizophrenia, traders earlier this week responded to reports of cutback compliance exceeding 120 percent by causing West Texas Intermediate to climb just a few cents and Brent to fall 39 cents - a sure sign that any initiative ultimately decided upon does not guarantee price gains.
