Oil bulls have taken heart from a few words of optimism emanating from Opec.
Global oil prices jumped after Opec’s president said last week the group will hold informal talks in Algiers next month and Saudi Arabia signalled it’s open to discussing an output freeze to stabilise markets. Prices hit the highest levels in more than five weeks in early trade yesterday.
Amid rising hopes of a deal to freeze production, hedge funds increased their bullish long positions in West Texas Intermediate crude by 17,154 futures and options combined during the week ended August 9, according to the Commodity Futures Trading Commission.
Meantime, US oil producers added rigs for the seventh week in a row, the longest period of expansion since the final days of the drilling boom in early 2014, according to Bloomberg. Rigs rose by 15 to 396, after seven were added last week, Baker Hughes said on Friday.
This year’s uptick in prices, along with companies’ increased efficiency, has prompted Moody’s Investors Service to raise its global outlook for integrated and independent oil and gas producers to “stable” from “negative” for the first time in nearly two years. Producers seem to have hit a bottom, said Steven Wood, managing director for the energy team at the rating agency.
Despite green shoots of optimism in the market, it still is not a rosy path of steady recovery for the oil market. Not all analysts are convinced that the Saudi comments will translate into an output freeze when Opec members meet in Algeria on September 26-28. Russia, Iran, Iraq, Nigeria, Libya, all pose hurdles.
Tehran argues it needs to regain market share lost during years of sanctions softened only in January; Opec’s second largest producer Iraq has agreed with oil majors on new contract terms which will see output rise further next year by up to 350,000bpd; current production declines in Nigeria and Libya only raise question of what level they should limit supplies at.
Russia, with its output hovering near an all-time high of 10.85mn bpd, has sent conflicting signals on a dialogue, while continuing to boost production. Interestingly, Saudi Arabia itself has raised its output to record levels in July due to rising seasonal domestic demand and its customers asking for more.
The International Energy Agency expects non-Opec output to rise by 300,000 bpd next year.
Oil, for sure, is much more than a fuel. It is a force even bigger than its trillion dollar market; a fact explained beyond doubt by the impact of consistently lower oil prices on the Middle East as well as the whole world.
True, few analysts expect oil prices to return to the high levels seen a few years ago any time soon. But oil companies say global energy future envisages rising demand and population growth, making oil an important fuel for decades to come. Despite the emergence of renewables, global energy security depends mainly on fossil fuels for the foreseeable future.
The world is in need of a stable oil market with price equilibrium.
The International Energy Agency expects
non-Opec output to rise by 300,000bpd next year
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