What to expect from today's oil talks

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What to expect from todays oil talks
On Friday, oil prices fell more than two per cent, wiping out the week's gains.

Published: Sun 23 Jul 2017, 9:00 PM

Last updated: Sun 23 Jul 2017, 11:17 PM

The much-anticipated meeting between oil ministers of Organisation of the Petroleum Exporting Countries (Opec) and their counterparts from the non-Opec countries today in Saint Petersburg is critical to producers' attempt to balance oil market's supply and demand.
For Opec, which is waging an uphill battle to balance the global supply-demand, decisions taken today at the Joint Ministerial Monitoring Committee (JMMC) could make or break prices that had already tumbled more than 12 per cent year to date, oil market analysts said.
Today's meeting assumes greater significance in the backdrop of a rebound in oil production in Nigeria and Libya (both are exempt from the output cut agreement) even as Ecuador argues that it can no longer fulfil the production cut requirement due to economic situations.
Although it is unlikely that the ministers will rush into making a further cut in oil output or end some countries' exemptions to output limits, they will certainly consider further steps to support the market, analysts said.
The UAE Energy Minister Suhail bin Mohammed Faraj Al Mazrouei said on Friday he hopes that global supplies would start tightening in the second half of the year when demand picks up.
Al Mazrouei said the UAE was committed to the cut and hoped the production cut deal would have a significant impact in the third and fourth quarters.
In December 2016, Opec and some non-Opec countries pledged to cut production by 1.8 million bpd between January this year and the end of March 2018 in a bid to ease a global glut after more than two years of low prices. However, despite the deal prices have slumped.
On Friday, oil prices fell more than two per cent, wiping out the week's gains after Petro-Logistics, which tracks supply forecasts, said Opec crude production would rise by 145,000 bpd in July, taking the group's combined output above 33 million bpd.
The news weighed on oil prices, which had been trading in positive territory for most of the session. Benchmark Brent crude futures were down 36 cents at $48.94 a barrel, while US West Texas Intermediate (WTI) crude futures traded at $46.52 a barrel, down 40 cents.
Kuwait's Oil Minister Essam Al Marzouq said compliance with oil production cuts by Opec and non-Opec countries is good and that deeper cuts are possible.
On the possibility of further cuts to support the price of crude, the minister said: "Everything is open."
The Kuwaiti oil minister has also reportedly said that Libya and Nigeria may soon be asked to limit their production. There is also speculation that Saudi Arabia is considering a one million-barrel cut to its oil exports to offset the output rise in Libya and Nigeria.
Russia's Oil Minister Alexander Novak said Opec and non-Opec producers have the capacity to extend and deepen their production cuts should the oil market's situation become even more complex.
"If necessary, we can extend the agreement. If necessary, we can increase the amounts that need to be reduced or on the contrary, we can move to reduce them," Novak was quoted on the sidelines of a recent World Petroleum Congress in Istanbul.
Analysts said rising production in the US is the key factor to blame for oil price plunge.
Michael Lynch, president of president of Strategic Energy & Economic Research, said he believes Monday's meeting will primarily focus on exhorting everyone to stay the course.
Global oil inventories climbed by 720,000 barrels a day to 97.46 million barrels a day in June because of increased output from Opec and non-Opec producers such as the US, the International Energy Agency Agency said in a report.
Lukman Otunuga, research analyst at FXTM, said: It had been an eventful second trading quarter for the oil markets, with the commodity still under intense pressure as the oversupply woes remained a dominant theme. "The recent string of events involving Opec and oil price action in general raise questions over whether the group has lost its grip on the global oil markets."
"I believe the threat of increased production from Nigeria and Libya which would obstruct efforts made by the rest of the group to rebalance the markets may prompt Opec to request for production caps from both nations at the meeting today," Otunuga said.
Norbert Rücker, head of Commodities Research, Julius Baer, said with the persistent supply glut casting a cloud over the oil market, all eyes are on the weekly oil inventory statistics published by the US Energy Information Administration that showed a significant drop in inventories. The EIA forecasts that total US crude oil production will average 9.3 million barrels per day in 2017, up 0.5 million barrels a day from 2016.
According to the International Energy Agency, demand in 2017 is expected to increase at the same pace as in 2016, or 1.3 million barrels a day. Demand is expected to continue to rise in 2018, the increase reaching 1.4 million barrels a day. "Globally speaking, the reduction in world stocks will be slow, and we are making a slight revision to our forecasts for 2017, with a ceiling of $55 a barrel (WTI) and a floor of $40."
Analysts believe growing shale output and stagnant western-world oil demand would continue to undermine the Middle East's supply deal. US oil production is expected to rise to record highs in 2018, based on the current drilling frenzy.
They believe tensions in the Gulf region are unlikely to negatively impact energy supplies. "We see oil trending sideways, spending more time in the high 40s than the low 50s, in part because the shale revival and stagnant western-world oil demand undermine the Middle East's restriction efforts."
- issacjohn@khaleejtimes.com

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Issac John

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