Monday, 21 January, 2019

OPEC oil squeeze to remain, but will it lift prices?

Oil languishes after OPEC fails to deepen supply cuts Asia stocks retreat Oil languishes after OPEC fails to deepen supply cuts Asia stocks retreat Crude prices remained subdued
Nellie Chapman | 30 May, 2017, 03:51

Crude prices plunged 5 per cent after the decision as some had priced in more aggressive output cuts.

Saudi Arabia's energy minister, Khalid al-Falih, said fellow ministers did not see a need to reduce oil output further.

US oil production has already risen by 10% since mid-2016 to over 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia.

The aussie extended losses against the greenback to reach a low of $0.7421 on the back of lower Dalian iron ore prices, a key export for Australia.

Disappointment at the oil deal weighed on commodity currencies, while the United Kingdom pound took a knock from polls suggesting that the ruling Conservative party's poll lead is narrowing as the early June election day approaches.

World shares bounced around, with Wall Street turning slightly negative after six straight days of gains as another strong day for consumer stocks offset weakness in financial and technology companies.

Despite an admission that November's landmark agreement to limit output failed to eliminate the global oil glut, the commitment of two-dozen oil-producing countries did succeed in establishing a new floor for prices that's well above the lows seen past year.

The two sides made a decision to remove about 1.8 million barrels per day (bpd) from the market in the first half of 2017 - equal to 2 percent of global production, taking October 2016 as the baseline month for reductions. France's CAC 40 index flopped down 0.8% to 5,292.57 and Italy's FTSE MIB fell 1%.

The yen rose 0.1 per cent to 111.71 per dollar as of 9:17am in Tokyo, after dropping 0.3 per cent on Thursday.

"Prices today and in the near term are absolutely crucial for the economic stability of many oil producing nations, not just OPEC".

Spot gold was up 0.1% at $1,257.01/oz by 4.11am GMT. Iran and Iraq have been making inroads in both European and Asian markets - effectively taking market share away from Saudi Arabia and other Gulf countries. It was last down 1.18 percent at $1.2785.

Among automakers, Toyota lost 0.7 percent and Honda fell 1.2 percent. Brent crude, the global benchmark, was up 28 cents, or 0.5%, to $51.77 after earlier falling below $51 a barrel.

OPEC and non-OPEC delegates said joint cuts with non-OPEC were agreed at around 1.8 million bpd, which would see non-OPEC producers again contributing a reduction of under 600,000 bpd.

The Commerce Department released a report showing that the economy grew by much more than initially estimated in the first three months of the year.

Commerzbank analysts said that as US producers take more and more market share, some OPEC members may start to get cold feet about the deal and to ramp up output again.

The euro bought $1.1217, not far off from $1.1217 late Thursday in NY.

Ministers from the participating countries said they would be amenable to changing the deal to help juice the market rebalancing if the fundamentals turn against them, but have left unclear how this may happen.