EMEA News
Bullish Saudis Seem Happy with $50 Oil, But Stability of Market Is In Serious Question
Brent crude futures settled down 25 cents to $50.10 per barrel on Monday, and U.S. crude traded down 23 cents at $48.76 per barrel, following comments made by Khaled Al-Faleh, energy minster for Saudi Arabia, that the oil market is heading towards balance.
Al-Faleh as well as the secretary general of the Organization of the Petroleum Exporting Countries (OPEC) reportedly both agree that current prices support their contention of a growing rebalance.
However, there are numerous indications that prices could fall again – and soon, starting with a deal to unify Libya's rival national oil corporations, which would result in the OPEC member significantly boosting output.
Bjarne Schieldrop, chief analyst for commodities at SEB Markets, remarked, "If the deal materializes it will have a real and considerable impact on the oil market balance for 2017, potentially cancelling out any projected deficit."
Other signs include weak refining margins prompting run cuts when plants in Asia are gearing up for seasonal maintenance work: analysts for Morgan Stanley said, "Asia refiners have already started to pull back ... and there are reports of cargoes struggling to sell."
Yet more factors that could prompt falling oil prices are U.S. drillers adding rigs for a fourth week out of five (which Fortune calls "the best month of producers returning to the well pad since August 2016"); Russian crude output up slightly in June compared to May (10.84 million barrels per day from 10.83 million bpd); and oil workers in Norway signing a deal and avoiding a strike that would have cut output by 6 percent.
But even if all these factors somehow fail to make a substantial dent in prices, $50 oil may satisfy the Saudis and OPEC but it poses a fundamental market problem, as far as Paul Hornsell, head of commodities research at Standard Chartered, is concerned.
Last month Hornsell told Reuters that $50 oil is too low to lure fresh investors and too high to force more production offline: "It's 'reverse Goldilocks': it's not hot enough and it's not cold enough."
