Crude Prices Drop Again on Tuesday, but UAE Says OPEC Cutback Extension Will Bring Market Closer to Rebalance

The UAE believes increased demand will also help alleviate the oil glut in the latter half of 2017.

Another day, another round of opinion on whether the world is drowning in excess oil surplus or heading towards an unwanted tightening, this time with Suhail Al Mazrouei, energy minister for the United Arab Emirates, telling Bloomberg, "The danger is not about oversupply in the market."

Speaking in Abu Dhabi, Al Mazrouei said the Organization of the Petroleum Exporting Countries (OPEC) and non-members should extend their crude output cuts into the second half of this year, where an anticipated upturn in demand will help re-balance the market: "What we are focusing on in the second half of the year is the five-year average."

He added, "We have an increasing demand in the second half of the year, and refineries will conclude maintenance work and start consuming oil and draw from inventories; the most important thing is how much oil you take off the market."

The market on Tuesday did not share the energy minister's optimism: once again, West Texas Intermediate prices fell, by $1.18 to settle at $47.66 per barrel; Brent fell $1.06 to $50.46.

The losses were reportedly a reaction to Saudi Arabia's budget deficit narrowing more than expected, which indicates it's coping with tepid oil prices brought about by oversupply; however, presumably investors are also concerned about U.S. gasoline supplies rising by 1 million barrels last week, as well as Libya's production rising above 760,000 barrels per day (bpd), its highest since December 2014, according to the National Oil Corporation.

Additionally, NOC is said to be working on plans to increase production even further, possibly to 1.1 million bpd by October.

But even though the increased output from a host of different major producing nations would indicate that an OPEC cutback extension would at most have minimal success in mitigating supply at a time of questionable demand forecasts, the assurances from the analytical communities that everything will be okay continues.

Martin King, director of institutional research at GMP FirstEnergy, told delegates at the Petroleum Club in Calgary, Canada on Tuesday that the world will not drown in oil - at least, not due to rampant U.S. production: "It is fundamentally impossible for the U.S. to offset all the supply cuts from OPEC, the supply cuts from participating non-OPEC countries, and deal with demand growth."

King believes an OPEC cutback extension "should create enough momentum to get inventories drawn down; that's the math people go through — the U.S. supplies cannot offset that."

He concluded that as a result, oil prices will rise in the second half of 2017 to $60 and average $65 in 2018.

Earlier this week, Fereidun Fesharaki, founder and chairman of FGE, was so concerned over rising production that he said the OPEC cuts "will have to be extended even beyond this year, to the middle or even the end of next year."

But John Watson, CEO of Chevron, told media that the market "is now pretty well balanced" and that we will soon need "all sources of supply" to accommodate rapidly rising demand.