Next OPEC meet in December would be the key as the current decision is applicable till end 2018 only.
Crude oil prices rallied from $50 per barrel to $70 per bbl in the last one year on supply tightness due to loss of oil output from Venezuela and renewed US sanction worries on Iran.
OPEC and some non-OPEC oil-producing countries have agreed for output cut of 1.8 million barrels per day (mbpd) in December 2016. In recent month underproduction by OPEC countries including Venezuela and Angola, the cut had become almost 2.8 mbpd.
But the recent OPEC meeting suggests stability would come to the market. OPEC and non-OPEC combined would pump roughly an extra 1 mbpd in coming months, equal to 1 percent of global supply and this will bring the production in line with that originally envisaged in December 2016.
Also, remarks by Saudi minister suggest falling production of some members would be compensated by other member countries that can produce more. Saudi stand against traders who pushed up oil prices sharply last Friday appears firm.
If Iran’s resistance does not become serious then oil bulls need to subside their expectation.
We believe the high probability case is price movement from here on would be the reverse replica of how WTI price had panned out post-December 2016 OPEC cut in production.
After spiking to $54, crude had fallen back to $45 after production cut announcement and then rallied. In the medium term, the next OPEC meet in December would be the key as the current decision is applicable till end 2018 only.
Structurally, there appears consensus among everyone including oil producers and consumers that WTI should trade around $60-65 per barrel. And never in the history, was it so happily balanced market.
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