TheJakartaPost
Please Update your browser
Your browser is out of date, and may not be compatible with our website. A list of the most popular web browsers can be found below.
Just click on the icons to get to the download page.
Oil market focus turns to more output reductions
With refinery activity running at higher-than-normal levels for this time of year, seasonal draws in crude stocks — which typically begin in May — have already started.
Change Size
With refinery activity running at higher-than-normal levels for this time of year, seasonal draws in crude stocks — which typically begin in May — have already started. (shutterstock/-)
T
he oil market’s patience is being tested to the limit. Concerns about compliance to the December 2016 output cut agreement by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC suppliers have evaporated — almost everyone has been compliant enough. The predominant concern now is that what was done was not enough as stocks remain high. More needs to be done but do suppliers have the wherewithal to do it?
Strong signs have emerged recently that OPEC and non-OPEC suppliers will almost certainly extend the December agreement by another three to six months. It is this rhetoric that has seen global crude benchmarks bounce off lows seen in March back to above the US$50/barrel mark. This makes it all the more crucial that the deal is indeed extended at the next OPEC meeting on May 25 to avoid the kind of downturn in prices that the market saw in March.
Saudi Arabia and Russia, the key proponents of the original deal, appear to be on board. Saudi Energy Minister Khalid al-Falih and Russian Energy Minister Alexander Novak said this month that they would back a continuation of the cuts. The timeline being discussed is three to six months.
The aim is to bring global oil stock levels down to more sensible levels and if this happens in the third quarter of the year, a threemonth extension is all that may be needed, according to Falih.
It is not all gloom and doom where stocks are concerned.
According to the Paris-based International Energy Agency, stocks in the Organization for Economic Cooperation and Development (OECD) appeared to have fallen in February and March, but the large increase seen in January meant that stocks had risen overall in the first quarter of 2017 by 38.5 million barrels. OECD stocks, at 3.06 billion barrels, remained 330 million barrels above the five-year average at the end of March.
In the United States, where the stock overhang has been a big drag on prices, some respite is forthcoming as refiners step up runs to meet summer demand.
