Cantor Fitzgerald Europe: Opec’s ability to control oil price ‘diluted’ by US
In the wake of last week’s Organization of the Petroleum Exporting Countries (Opec) meeting in Vienna, Sam Wahab, director of oil & gas research at Cantor Fitzgerald Europe, questioned the cartel’s ability to set and maintain prices.
“As expected following comments ahead of the meeting on behalf of Saudi Arabia and Russia, OPEC members have agreed to prolong the existing production curtailment (a cut of 1.8m bbl/d including Russia’s cuts) to the first quarter of 2018. OPEC has a self-imposed goal of bringing stocks down from a record high of 3bn bbls to the five-year average of 2.7bn bbls.
“Both Brent and WTI traded around one-month highs ahead of the OPEC meeting, but were tempered when Saudi Arabia’s oil minister played down further reductions in any new OPEC output deal.
“Following the meeting, we have seen both Brent and WTI trading lower on the news as a proportion of the market had priced in the potential for deeper cuts. However, this failed to materialise – a case of buying on rumor and selling on facts.
“There seems to be a little resistance on the price at US$55/bbl, but if OPEC members and a selection of non-OPEC members – notably Russia – abide by the supply cut, the price could conceivably hit US$60/bbl by year end.
“It is also worth noting that Saudi Arabia is in the process of listing Aramco (the national oil company), and will therefore require a stable oil price to support their US$2tn valuation of the company, and so it is in the country’s interest to continue with production cuts.
“The key risk to the downside continues to stem from growing US production, which threatens to replace the cut in supply from Saudi/Russia. A further 8 US oil rigs were added last week, bringing the total count up to 720, the most since April 2015, and it is very likely this trend will continue at current oil prices. U.S. output has increased c.1m bbl/d to 9m bopd, placing the country’s output alongside Saudi Arabia and Russia, thus somewhat diluting OPEC’s ability to play a role in setting prices and supplies.”