Friday, 20 October, 2017

Oil prices stable in early going as OPEC sees return of balance

A flag with the Organization of the Petroleum Exporting Countries logo is seen during a meeting of OPEC and non-OPEC producing countr A flag with the Organization of the Petroleum Exporting Countries logo is seen during a meeting of OPEC and non-OPEC producing countr
Marta Holmes | 12 October, 2017, 00:44

"It is no secret to anyone that OPEC and US shale producers have been battling each other in a production war since the dramatic decline in the price of oil has begun three years ago; however, each party would benefit from a stronger price of oil in the medium to longer term", said Ahmad.

"It is a big market and demand is very strong".

Barkindo stressed, however, that the oil market is a global one. The four-week moving average for US oil production is up 11.8 percent from previous year.

OPEC, along with other producers including Russian Federation, agreed to cut output by 1.8 million barrels per day (bpd) through March 2018 to balance the market. "Between the first half and second half this year, demand growth is nearly about 2 million barrels (per day), which is very robust", he said.

Bloomberg reported that the Brent benchmark had erased earlier declines to trade marginally higher at $55.62 a barrel, after the news of the Saudi oil allocations cuts.

OPEC and its allies want to bring stocks down to the five-year average and are discussing extending their supply restraint.

Oil prices also gained support by the International Monetary Fund's prediction that global economic growth is expected to be 3.6% this year and 3.7% next year.

The report also cited headwinds in 2018 for an expansion of supplies in US shale, such as lower drilling efficiency and cost inflation.

"A rise above that level would encourage United States oil producers to expand their drilling activities, otherwise the lower prices could lead to a reduction" in investments, it added.

Increasing demand for oil will be matched by added supplies, but Opec's forecasts for the balance of supply and demand foresee a greater reliance on the cartel's output.

Oil prices were virtually flat on Wednesday as Saudi Arabia said it pumped more in September than August, even as OPEC forecast higher demand for 2018.

The report's OPEC production figures mean compliance with the supply cut by the 11 members with output targets remains high at 98 percent, according to a Reuters calculation.

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management said OPEC and oil bulls were "hoping U.S. producers slow down production and make further progress on inventory cuts".

Read: What happens if OPEC maintains current levels of production?

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