Yemisi Izuora
Oil Prices dropped on Wednesday on doubts that OPEC and Russia will agree an extended crude production cut that the market has priced in, and after a report of an unexpected rise in U.S. fuel inventories.
U.S. West Texas Intermediate (WTI) crude futures were at $57.72 a barrel 27 cents, or 0.5 percent below their last settlement.
Traders said WTI was pulled down by a report from the American Petroleum Institute (API) late on Tuesday which showed U.S. crude inventories rose by 1.8 million barrels in the week to November 24 to 457.3 million barrels.
Official U.S. fuel inventory data is due later on Wednesday, as Brent Crude futures, the international benchmark for oil prices, were at $63.27 a barrel, down 34 cents, or 0.5 percent.
Oil prices have received a broad push this year, with Brent up by 40 percent since mid-2017, due to an effort by the Organization of the Petroleum Exporting Countries (OPEC) and a group of other producers, led by Russia, to withhold 1.8 million barrels per day (bpd) of output.
The deal expires in March 2018, but OPEC will meet on Nov. 30 to discuss its policy.
“Market whispers suggest Saudi Arabia and Russia are not yet fully coordinated,” said Stephen Innes, head of Asia-Pacific trading at futures brokerage OANDA.
OPEC and Russia are expected to extend their supply cuts for the whole of 2018 but with an option to review the deal in June, OPEC sources said on Tuesday, after Moscow expressed concerns the market could overheat.
United Arab Emirates Energy Minister Suhail bin Mohammed al-Mazroui said on Tuesday that cutting output through the whole of 2018 was still the main scenario, but not the only one.
Most analysts say an extension is needed to keep oil markets in supply and demand balance, and also to keep the economies of oil exporting nations afloat.
“It is in Russia’s as well as OPEC’s best interest to support oil prices given their economies dependence on oil,” said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers.
Not all analysts agree. “Given the agreement doesn’t expire for another four months, adding an additional nine months on that to the end of 2018 seems unnecessarily eager given the market does seem to be rebalancing and certainly prices have moved substantially higher in the past few months,” said Greg McKenna, chief market strategist at AxiTrader.
Helping oil markets come into balance after years of oversupply has been a healthy global economy.
U.S. bank Morgan Stanley said global economic growth was “likely to gain momentum and breadth in 2018”.
Meanwhile the International Energy Agency, IEA predicts that oil markets would tighten towards second half of 2018.
IEA chief, Fatih Birol made the comment while speaking ahead of the OPEC’s meeting tomorrow,Thursday amid concern that its efforts to rebalance the oil market might overshoot by creating a global deficit and spurring a further price rally.
The global oil market could tighten towards the second half of 2018 if demand remains robust and key producers continue their current polices, Birol said.
“If we have strong demand growth and if producers continue to stick to their policies we may well see tightening of the markets… I expect this sometime next year, towards the second half of the next year…,” he told Reuters on the sidelines of an energy conference in Norway.
“It’s up to OPEC countries to decide what are they going to do, but what we see is that the market is already on its way towards rebalancing… Therefore the price (of oil) that we have today, above $60, is a good number for most oil investments to be profitable,” Birol said.