Could OPEC cut production levels again? | RJO Futures

March 6, 2017 1:22PM CST

OPEC’s coordinated effort to curtail global supply has so far managed to put a floor under oil prices, which have been sitting modestly above $50 since the deal was announced at the end of November the previous year.  The resurging U.S. shale has been capping the upside, and Brent crude oil has not breached $58 per barrel. 

The supply-cut deal has so far resulted in a surprisingly high OPEC compliance of more than 90 percent, thanks to OPEC’s leader and biggest producer, Saudi Arabia, which has been cutting deeper than pledged. 

A key upside driver for prices would be an extension of the OPEC deal beyond its original expiry date at the end of June. OPEC is said to be prepared to extend the deal, and may also increase the cuts, if inventories fail to drop to a specified level.

OPEC has always claimed that the primary goal of the cut was to draw down excessive supply and bring the market back into balance. The February Oil Market report by the International Energy Agency (IEA) said that OPED total oil stocks had already dropped nearly 800,000 bpd in the fourth quarter of 2016, the largest fall in 3 years. Inventories at the end of December were below 3 billion barrels for the first time since December 2015.  Global oil supplies plunged nearly 1.5 million bpd in January 2017, with both OPEC and non-OPEC countries producing less, the IEA noted.

Oil is bound to be very volatile for the near future and probably for the rest of the year.  Traders should watch for small trend patterns that develop from tighter trading ranges.  The market is testing prices around $50 to see where the bottom is at. 

Apr ’17 Crude Oil Daily Chart

Crude Oil Daily Chart


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