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1. Crude futures were flat with their Thursday’s close early Friday in Asia, having digested the week’s bearish shock from major gasoline inventory builds in the US as well as comments from some of the OPEC ministers and officials attending an oil conference in Abu Dhabi that the OPEC/non-OPEC production cuts were working and consensus was growing around the need to prolong them beyond June. For this week, the gasoline stock-build has outweighed optimism over the output cuts guiding the market back into equilibrium, helped by a longer-term n bearish shadow being cast on the oil market by a potential surge in US production.
2. June ICE Brent was trading at $53.00/barrel at 0330 GMT (11.30 am SGT, 9.00 am IST) Friday, a cent above Thursday’s close. June WTI, the new front-month, was changing hands around $50.74, 3 cents higher than its previous day’s close. Brent settled 6 cents higher Thursday, with May WTI expiring at $50.27, 17 cents lower.
3. “There is an initial agreement but it has not been communicated to all the countries yet that we might be forced to extend in order to reach our goal,” Saudi energy minister Khalid al-Falih was reported to have said in a speech at an oil conference in Abu Dhabi Thursday, referring to the OPEC and non-OPEC agreements to collectively remove 1.8 million b/d of supply from the markets for an initial period of January-June. The market has largely factored in a roll-over decision at OPEC’s next meeting May 25, so any new comments from OPEC ministers or officials reiterating that likelihood are unlikely to move crude prices.
4. A new variable that has emerged in the past week, though, is the possibility that the extension could have a tenure of as little as three months or as much as one year. While extending the cuts under existing production caps for the participating countries, with continuing exemptions for Nigeria and Libya, which is starting to appear likely, would help forge the necessary consensus, discussions on the length of the extension could prove tricky. OPEC, under Saudi leadership, appears determined to see through its efforts to drain global inventories back to five-year average levels, but it is also keeping a wary eye on the impact of higher crude prices on the US shale patch. A one-year extension would provide US producers the certainty they need to go full-throttle, something likely to be unpalatable to the countries curbing output.
Data In Sight
Founder, Vanda Insights
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