I think it would not be possible to achieve the crude oil price improvement by only OPEC’s efforts. I am not sure whether KLR Group’s research also covers the role of U.S. producers, but, in my view, the agreement to cut production is not longer “likely” but rather will be offset by the US shale producers. Even if initially the oil price will start to improve, due to OPEC’s final decision to extend the agreement of the output cuts, most likely it would be achieved due to markets expectations to finally see the light at the end of the tunnel.
The US shale oil production is one of the major influential factors. Therefore, methods which oil and gas industry used in the past to balance the market are no longer effective. A new approach needs to be developed that would include the US producers to ensure that crude oil prices are finally stabilised. I afraid that without inclusion of the US players, the result achieved by OPEC’s decision to extend production cuts will be short lived.
Clear signs emerged this week that the OPEC production cuts in place since November 2016 may be extended past their June 2017 deadline.
On Tuesday, Saudi Arabia expressed their willingness to extend the cuts, and the OPEC monthly production report showed the Saudis continuing their over-compliance, cutting production to 9.9 million bpd in March, around 100,000 bpd below the agreed-upon monthly quota.
The total fall in OPEC production was 365,000 bpd, sending total production down to 31.68 million bpd. Saudi over-compliance was one factor in the decline, but there were also involuntary losses in Libya and Nigeria. Along with Saudi Arabia, other OPEC members like Kuwait, Iraq, Algeria and Angola have all said that further cuts will be necessary to return markets to a state of balance.
The Middle Eastern producers have indicated that their ideal price target is $60, a level which they feel will allow their economies to recover without enabling further American production, according to the Wall Street Journal . Both the announcement of the Saudi position and the OPEC report helped keep prices buoyant this week, as the late-March rally continued, sending the WTI above $53 a barrel.
Research from the KLR Group released on Thursday indicated that global inventories would be normalized late in 2017 if the OPEC cuts were extended. A stabilizing supply-demand situation is also the outlook of the IEA, which predicted demand to decline for the second year in a row in 2017. Neither bearish nor bullish , the IEA outlook hedged on the side of caution, noting that declining inventories and OPEC cuts raising prices would spur new growth in U.S. production, partially offsetting the OPEC gains and repeating the trend of early 2017. In January, reports of huge inventory draws and a surge in shale activity saw the price fall back to its pre-November level.