Oil Prices Make Delayed Surge on OPEC Deal as the U.S. Emerges as the True Beneficiary of the Extension

Asia is reportedly relying on the Americans for more oil. File Image / Pixabay

A delayed but welcome reaction to the Organization of the Petroleum Exporting Countries (OPEC) extending its output cutbacks until the end of 2018 came thundering in on Friday with West Texas Intermediate surging by 96 cents to settle at $58.36 and Brent climbing $1.04 to to $63.37 per barrel.

John Kilduff, founding partner at Again Capital, remarked, "The market is giving the OPEC, non-OPEC accord its due; the Saudi oil minister came across as resolute and determined to see global crude oil inventories reduce."

However, particulars of the OPEC extension now coming to light are causing some concern, to wit: Russia reportedly stressed the need for clarity on an exit strategy from the deal and a reference to a review process in June was included to satisfy the former Soviet Union.

Olivier Jakob, managing director for Petromatrix, said, "It leaves a question mark about the second half of 2018 and about the commitment of Russian oil companies, which will be price dependent."

And unsurprisingly, the mere fact the deal was extended is cause for concern in some quarters: John Driscoll, chief strategist for JTD Energy Services, told CNBC that "the rebalancing is taking place....but one of the greatest fears for the cartel is that it happens quickly and prices move up.

"That would actually be bad for the cartel: it would encourage a response on the supply side and But possibly depress prices."

Abhishek Kumar, senior energy analyst at Interfax Energys Global Gas Analytics, said, "Countries involved in the (OPEC) deal ... will keep a close eye on U.S. oil production and will not shy away from taking appropriate steps to counter its impact."

On many fronts, the U.S. could prove to be the big winners of the OPEC extension: no sooner did the ink dry on the deal than Asian refiners began ordering more oil from the Caribbean and Gulf of Mexico, a broker who specializes in long-haul shipments told Reuters.

Barclays in a note to clients on Friday stated, "U.S. crude oil exports to China could easily double next year as U.S. production and export capacity expands ... (and) OPEC countries will see their market shares in Asia decline further."

The persistent U.S. shale growth is apparently a thorn in the side of Alexander Novak, energy minister for Russia, who replied testily when the subject was raised yesterday in Vienna, "I am asked this question every interview and I have already answered it many times: this is not news for us, [and] for some reason when people ask this question they seem to believe that we didn't think that shale oil would grow.

"Either you underestimate us or you think we lack professionalism. I think that if you think we are professional you need to understand that we are including all this in our calculations."

If the U.S. remains the victor in the volatile global crude market, the perpetual loser is Venezuela, which gained unfavourable headlines on Friday with a report that cash strapped Petroleos de Venezuela SA, once Latin America's largest oil producer and exporter, is using something akin to Hamburger Helper to make its crude more palatable to refiners.

Andy Lipow, president of Lipow Oil Associates, remarked, "This is just another chapter of how the entire oil industry over there is falling apart."

Despite OPEC's success this week, larger issues herald more trouble for crude in the near term: for example, Saxo Bank noted that China and India's efforts to curb pollution may cause oil prices to plummet as low as $35 per barrel next year.