Oil Hits Highest Level in More Than a Month Ahead of OPEC Meeting
22 May 2017 - 9:13PM
Dow Jones News
By Timothy Puko
Oil prices rose to a fresh one-month high Monday, with traders
expecting this week's OPEC meeting to end with an extension or even
deepening of the group's recent output cuts.
It was the 10th winning session of the last 12, one of several
lengthy rallies in recent months largely tied to the Organization
of the Petroleum Exporting Countries. Falling stockpiles this month
in the U.S. have some convinced that cuts from the group of global
exporters are impacting supply, and crude prices are up 11% since
they hit a six-month low May 4.
OPEC meets Thursday to discuss its continuing, six-month deal to
drop production by 1.8 million barrels, which leaders have said may
get an extension through next winter. Comments along those lines
from OPEC officials and from Saudi and Russian leaders haven't
received as much attention as they may have deserved, analysts at
Credit Suisse Group AG said in a note Monday morning.
They are "fully aware that their efforts so far have broadly
failed and that either the group abandons active supply management
entirely, or it becomes more serious. It looks as if producers will
get serious," said the analysts, led by Jan Stuart.
Light, sweet crude for June settled up 40 cents, or 0.8%, at
$50.73 a barrel on the New York Mercantile Exchange. The June
contract expired at settlement. The more actively traded July
contract settled up 46 cents, or 0.9%, to $51.13 a barrel. Brent
gained 26 cents, or 0.5%, to $53.87 a barrel on ICE Futures
Europe.
There is near-unanimity among watchers that the deal will be
extended, with the only real questions being for how long and
whether cuts are more severe. The fact that prices have retreated
several times and that U.S. inventories kept growing to start the
year both made it almost essential for OPEC to extend the cuts if
it wants oil prices above $50 a barrel, analysts and a broker
said.
"They have to. They see the market got real soft," said Ric
Navy, senior vice president for energy futures at brokerage R.J.
O'Brien & Associates LLC. "It's the next level of
jawboning."
Gordon Kwan, head of regional energy research at Nomura, said
deeper production cuts of more than 2 million barrels a day may be
on the card as Saudi Arabia is showing signs of impatience with the
pace of rebalancing, which is happening slowly as U.S. producers
have stepped up output this year.
The investment bank estimates OPEC has been 90%-compliant with
the promised cuts so far, but the rebalancing of supply and demand
could still be as far as 18 months away, after the buildup of
stocks over the past three years.
The risk of a long extension to the cuts is that it could
further encourage U.S. shale output, said Capital Economics. But
even with higher U.S. supplies, the oil market under OPEC-led
production caps would eventually move toward a "significant
deficit."
U.S. shale oil producers have been steadily ramping up
production with the Energy Information Administration forecasting
U.S. output to hit a record of nearly 10 million barrels a day in
2018.
Most of that growth comes from the Permian Basin, but even rapid
growth there of about 1 million barrels a day by the end of 2018
leaves a supply gap, analysts at Raymond James Financial Inc. said
in a note Monday. It is far below cuts from OPEC at a time when
demand is likely to keep growing strong, said Justin Jenkins,
analyst at the firm.
"We have one of the most (if not the most) aggressive 2017-18
Permian production growth forecasts...but we don't think it will be
sufficient to oversupply the oil market in the near future," he
said. "OPEC probably gets there without the cuts, but it
accelerates the rebalancing if they keep them going."
Gasoline futures gained 1.03 cents, or 0.6%, to $1.6626 a
gallon, the 10th winning session in the past 12. It is at its
highest settlement since April 20.
Diesel futures gained 1.94 cents, or 1.2%, to $1.6021 a gallon,
its ninth-straight winning session. It is at its highest settlement
since April 18.
Sarah McFarlane and Biman Mukherji contributed to this
article.
Write to Timothy Puko at tim.puko@wsj.com
(END) Dow Jones Newswires
May 22, 2017 15:58 ET (19:58 GMT)
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