Pre-OPEC Oil Rally Setting Up Market for a Fall?
22 May 2017 - 5:18AM
Dow Jones News
By Biman Mukherji
Oil prices continued to climb to start the week, pushing futures
to their highest levels in more than a month ahead of Thursday's
meeting of the Organization of the Petroleum Exporting
Countries.
Major oil producers will join OPEC members in Vienna to discuss
extending their 6-month-old agreement to cut production by 1.8
million barrels a day through mid-2017. There's near-unanimity
among watchers that a deal will get extended, with the only real
questions being for how long and whether even more production gets
reduced.
Sentiment regarding a new deal has helped oil rebound 10% the
past two weeks.
The move, though, could be resulting in the oil market facing a
buy-the-rumor, sell-the-news scenario that crude prices pull back
at least somewhat regardless of what Thursday's announcements
are.
For now, bull remain firmly in charge. Light, sweet crude for
July delivery on the New York Mercantile Exchange was recently up
1% at $51.17 a barrel in the Globex electronic session. Brent
crude, the global benchmark, rose 1% to $54.13.
"We believe global oil markets are rebalancing," said Nomura.
But the investment bank also argued that "longer supply curbs are
needed to drain excess inventories built up during years of high
oil prices." It added while OPEC has been 90%-compliant with the
promised cuts so far, rebalance could still be as far as 18 months
away.
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.
But a long extension, possibly a year, of the current output
cuts 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 towards a
"significant deficit."
Nymex June gasoline futures were recently up 0.7% at $1.6638 a
gallon, diesel gained 0.8% to $1.5946 and ICE gasoil rose 0.7% to
$477 per metric ton.
Write to Biman Mukherji at biman.mukherji@dowjones.com
(END) Dow Jones Newswires
May 22, 2017 00:03 ET (04:03 GMT)
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