Currently, U.S. oil production is down about 600,000 barrels per day from the high set in June 2015 (about 9.6 million barrels per day), and production fell last week to 9.008 million barrels per day-the lowest in 17 months and close to dropping below the psychologically important nine million mark.
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The number of active rigs targeting crude in the USA fell for the 15th time in 16 weeks, dropping by eight to 354, Baker Hughes said on its website on Friday.
However, there is mounting skepticism among market experts that an agreement might not materialize after Saudi Arabia said it would opt out of the pact if Iran remains defiant by ramping up production until its output reaches pre-sanction levels of about 4 million barrels a day.
Analyst forecasts for oil vary widely, but the general consensus is that oil prices are headed higher.
Meanwhile, Kuwait Oil Company said it will soon offer contracts for offshore rigs and support services to drill its first undersea wells as the Persian Gulf nation tries to boost crude output to the highest level in more than four decades.
“Supply outages and adjustments to output in response to lower oil prices are helping to tighten market balances”, Barclays said.
“The potential risk for prices is for the downside as freezing output at current levels would be more of a symbolic act rather than a real market intervention”.
Goldman Sachs forecasts the Sunday meeting won’t yield any “bullish surprise” and said arresting output at the current level could be “self-defeating” because any moves to push prices up would entice more producers to turn the taps wider, introducing more barrels into the market.
Fortunately for investors, oil is volatile, and this is an opportunity for investors to buy oil stocks on dips in the price of oil.
“The world will reach “peak demand” before “peak supply”.
This was apparently enough optimism for oil investors, and both West Texas Intermediate (WTI) crude oil and Brent oil rose on the announcement. If prices retreat once again, it will be much more hard for the Fed to adopt a more hawkish policy stance.
The market reacted favorably this week to an unexpected drop in American crude inventories.
The gains came after last week’s rally, when crude rose 6 percent in one session on the back of a drop in the rig count of USA drillers to its lowest since November 2009. Thus, if Iraq, Iran, and other crude producers continue to increase production, Saudi Arabia will shun the idea altogether. Preliminary data on China’s March oil imports and exports will be released Wednesday.
RBC’s head of commodity strategy Helima Croft said this seeming comfort with scuttling the production freeze puts the Saudis at odds with not only the fragile oil producers, such as Venezuela and Nigeria, but also its traditional allies in the Gulf.
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The market is having difficulty maintaining a higher price because of a storage overhang, said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.
