Speculation of an OPEC production cut is overshadowing a Saudi Arabian price cut.
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Geopolitical uncertainties in Iran and Syria have the potential to serve as both negative or positive catalysts for oil process in coming months.
Brent LCOX5, -1.14% crude has been the more expensive oil for most of the last 5 years, but under the right conditions, it is possible for WTI CLX5, -1.44% to regain that crown, or at least narrow its price difference with the so-called global crude benchmark. Daniel Ang, an investment analyst with Phillip Futures in Singapore, said the return of Iranian oil after it complies with an agreement on curbing its nuclear programme, is likely to be part of any talks. Mark Papa, the former head of EOG Resources, one of the largest U.S. shale producers, estimates there will be soon “a pretty dramatic decline in USA production growth”. I can’t see where it should come from because there’s no change in fundamentals expected.
The tightening market balance comes as US production starts to decline, although the EIA’s latest forecasts suggest a smaller fall-off in annual output than previously expected.
Addressing the Oil and Money conference in London, an annual gathering of senior industry executives, Badri urged producers outside OPEC to help tackle a global surplus of crude, which he put at 200 million barrels. USA stockpiles remain about 100 MMbbl above the five-year average and the Organization of Petroleum Exporting Countries continues to pump more than its quota.
“Until West Texas breaks above $50 a barrel, the market remains sideways rather than upward”, Michael McCarthy, a chief strategist at CMC Markets in Sydney, said by phone. Demand will climb more than projected this year on low prices, OPEC Secretary-General Abdalla Salem El-Badri said in a statement to the worldwide Monetary Fund. US inventories expanded by 3.07 MMbbl through October 2 as production rose and refinery processing rates fell, according to government data. Higher stock prices on Wall Street provided further support to oil and other dollar-denominated commodities.
Later on Wednesday, market participants will be watching for the official US crude inventory data from the Energy Department ad seeing whether that confirms the API figure. Europe’s biggest oil company is also protecting its plan to buy back shares and keeping its “investment program steady for the future”, he said.
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At the same time, he noted that the lower oil price had boosted consumption and predicted that global demand would rise by 1.3 million barrels a day in 2016.
