Oil rises more than 1%; market corrects following Opec pact
May 26 2017 09:56 PM
A general view of a crude oil importing port in Qingdao, Shandong province, China. Russia’s Energy Minister said yesterday that an Opec and non-Opec committee could discuss possible adjustments to the Vienna agreement when it meets.

Reuters/New York

Oil prices rose more than 1% yesterday, a partial rebound from the previous day’s steep slide that came when an Opec-led decision to extend production curbs did not go as far as some investors had hoped.
On Thursday, crude prices tumbled 5% after the decision.
Some market participants had priced in more aggressive output cuts from the Organisation of the Petroleum Exporting Countries and other producers.
“I think it was kind of a knee jerk reaction, I don’t think it was anything meaningful,” said Antoine Halff, director of the Global Oil Programme at Columbia University.
Global benchmark Brent futures rose 50¢ to $51.97 a barrel at 12:29pm EDT (1629 GMT), after hitting a session low of $50.71.
US West Texas Intermediate (WTI) crude futures traded at $49.58 a barrel, up 68¢ day on the day.
Its intra-day low was $48.18.
On Thursday in Vienna Opec and key producers pledged to extend a cut of around 1.8mn barrels per day (bpd) of output until the end of the first quarter of 2018.
Producers have expressed confidence that this plan will bring down crude oil stocks to their five-year average of 2.7bn barrels.
One supportive factor for oil prices have been US data showing seven weeks of draws on domestic crude inventories, said Mark Watkins, regional investment manager at US Bank.
“We’re starting the beginning of the summer driving season, there’s a lot of hopes that are tied to an inventory draw from Memorial day to Labour day,” he said.
Yet he said the wild card for the oil market has been the growth in US crude production, particularly from shale.
US oil production has risen by 10% since mid-2016 to over 9.3mn bpd, close to the output of top producers Russia and Saudi Arabia.
With US output rising steadily and fears that Opec and its allies could raise production in 2018 to regain lost market share, many traders, including Goldman Sachs, already expect another price slump.
Meanwhile, US energy firms added oil rigs for a record 19 weeks in a row. The pace of those additions, however, has slowed with the total added so far in May falling to the lowest since October due to soft oil prices.
Drillers added two oil rigs in the week to May 26, bringing the total count up to 722, the most since April 2015, energy services firm Baker Hughes said yesterday. That is more than double the same week a year ago when there were only 316 active oil rigs, the least in more than six years.
The 19 weeks of rig increases matches the longest streak of consecutive additions on record, which ended in August 2011, according to Baker Hughes data going back to 1987.
“As a consequence of the extension of the cuts, we are likely to see a more supportive oil price and yet more US shale oil rigs being added to the market over the coming nine months,” said Bjarne Schieldrop, chief commodities analyst at Nordic corporate bank SEB.
“In our view, this is likely to flip the global supply/demand balance for 2018 and 2019 into surplus.” Futures for the balance of 2017 and calendar 2018 were both fetching around $50 a barrel.
Analysts at US financial services firm Cowen & Co said in a note this week that its capital expenditure tracking showed 60 exploration and production (E&P) companies planned to increase spending by an average of 51 percent in 2017 over 2016. That expected spending increase in 2017 followed an estimated 48% decline in 2016 and a 34% decline in 2015, Cowen said according to the 64 E&P companies it tracks. 
Other assessments pointed to the possibility of output cuts being extended into 2019 in order to bring down both crude oil and refined product stocks.
Russia’s Energy Minister said yesterday that a Opec and non-Opec committee could discuss possible adjustments to the agreement when it meets.
The group convenes every two months.

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