More Gains for Crude as Kuwait Reiterates There's No Plan to Exit Oil Cuts

events in Nigeria could lead to even further market tightening.. File Image / Pixabay

In what seems to be shaping up as the analytical community and media fomenting over a non-issue, crude market gains on Wednesday caused experts to complain that oil prices have reached excess levels and this will only stimulate U.S. output - which in turn will cause the Organization of the Petroleum Exporting Countries (OPEC), who are the masterminds of the gains via its production cutbacks - to abandon its strategy prematurely.

West Texas Intermediate gained 24 cents to $63.97 per barrel and Brent settled up 23 cents to $69.38 on the strength of American Petroleum Institute numbers showing that crude inventories fell last week by 5.1 million barrels, while gasoline stockpiles rose less than expected, by 1.8 million barrels.

The high prices have been accompanied by money managers raising bullish positions in crude futures and options by record amounts, and this prompted Norbert Ruecker, head of commodity research at Julius Baer, to worry that  "hedge fund expectations for further rising prices have reached excessive levels."

Ruecker's concerns dovetail with those of Citigroup Inc., Societe Generale, and JMorgan Chase & Co., all of whom have been reported as predicting that OPEC might ditch its cutbacks instead of maintaining them to the end of 2018 and ramping production back up in order to discourage rival supply.

On Wednesday it fell upon Bakheet Al-Rashidi, oil minister for Kuwait, to attempt to bring about calm in analytical circles: he told reporters that OPEC and other producers won't be discussing how to end the cuts when they meet this weekend in Oman.

He said, "There is no plan at all to talk about any exit strategy; we are committed until the end of the year, this is the agreement."

In a separate statement he added, "The production-reduction agreement will remain for a long time and there is no thinking right now to exit it."

For oil producing countries, there are many other things to focus on in an industry that, for the time being at least, appears to be robust: Yannis Bassias, chief executive of  Hellenic Hydrocarbons Resources Management, told Reuters that tenders for offshore oil and gas exploration and exploitation west and south of Greece have attracted "strong interest" from companies exploring in the Mediterranean.

On the flip side, Nigeria's efforts to boost production in order to take advantage of what seems to be robust global demand may be stymied as militants threatened on Wednesday to attack off-shore oil facilities within days.

The Niger Delta Avengers said in a statement on their website that "This round of attacks will be the most deadly and will be targeting the deep sea operations of the multinationals."

Attacks on pipelines and other facilities in 2016 cut Nigeria's crude production from 2.2 million barrels per day (bpd) to near 1 million bpd, the lowest level in at least 30 years.

Last week, OPEC's new president, the United Arab Emirates, clearly and concisely stated that OPEC has no reason to alter course on the back of rising prices because the crude gains are backed by strong demand growth.