Page 6 - MEOG Week 22

MEOG Commentary MEOG
OPEC+ to review output cuts as the oil price rally stalls
OPEC+ and its allies will decide as soon as this week whether or not to extend their historic output cuts.
oPeC+
What:
OPEC+ to meet to consider extending production cuts.
Why:
The present agreement suns through May and June.
What next:
The market is watching to see which way the dice will roll.
hOW long and to what extent global production curtailments remain in place will be crucial to sustaining crude’s rally after a record rebound lastmonth
The Organization of Petroleum Exporting Countries and its allies are expected to bring their next meeting forward to Thursday June 4 to discuss prolonging the present production curbs by one to three months, according to a delegate. The existing agreement calls for easing cuts from July, a plan Russia would prefer to stick to. Meanwhile, in the US, the oil-drilling fleet shrank for the eleventh week to a level not seen since before the shale revolution. While North American shut-ins have peaked, according to Bank of America, US imports of Saudi crude have surged, inflating inventories.
It seems that American stockpiles are head- ing higher at least in the short term as more imports come in; at present the market is over- supplied and everyone is looking for more signs of demand firming up.
So far, the production curbs have been effec- tive. The price of crude rallied by almost 90% last month, a record gain, as shrinking supplies helped to offset pandemic-related demand losses. Yet the rally depends on producers main- taining cuts until the crude surplus that has poured into the world’s storage tanks is mopped up. higher prices could tempt producers to turn the taps back on, undercutting gains.
West Texas Intermediate for July delivery fell as much as 3.4% Monday to $34.27, after advanc- ing 5.3% on Friday. The U.S. benchmark crude pared losses to trade at $34.85 as of 10:25 a.m. in New York. Global benchmark Brent crude for August slipped 10 cents to $37.74.
An earlier OPEC+ meeting would give the producer group more flexibility to change its current production limits as members usually decide on their plans for shipping oil for July in the first week of June. The group’s preference is to take short-term measures on cuts as the situ- ation is changing quickly, the delegate said. The coalition – which includes OPEC’s 13 members plus another 10 exporters – has achieved 92% compliance, according to an estimate by data
analytics firm Kpler.
Meanwhile, the US Oil Fund ETF will begin
its monthly roll of futures contracts on Monday. The fund plans to sell its July holdings and buy more November and January futures over the next 10 trading sessions.
Chinese resurgence
As Chinese oil demand rises to near pre-coro- navirus levels, more and more tankers are hauling crude to the Asian nation from almost everywhere.
While OPEC has helped global oil markets recover from the coronavirus crisis, the group will soon face a new challenge: the mountain of unwanted crude that piled up during the pandemic.
Falling fuel exports from China are providing a much-needed buffer for refiners elsewhere in Asia that are still grappling with lower consump- tion and poor margins.
Meanwhile commodities trader Trafigura Group is being investigated by U.S. authorities for alleged corruption and market manipulation related to oil trading, the Guardian reported. The company is particularly involved in South America and Africa.™
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w w w . N E W S B A S E . c o m Week 22 03•May•2020