Oil Hits Highest Level in More Than a Month Ahead of OPEC Meeting
May 22 2017 - 12:32PM
Dow Jones News
By Timothy Puko
Oil prices rose to a fresh one-month high Monday, with traders
expecting this week's OPEC meeting to end with an extension or even
deepening of the group's recent production cuts.
Gains Monday would be the 10th in 12 sessions, one of several
lengthy rallies in recent months largely tied to the Organization
of the Petroleum Exporting Countries. Falling stockpiles this month
in the U.S. have some convinced that cuts from the group of global
exporters are impacting supply, and crude prices are up 12% since
they hit a six-month low May 4.
OPEC meets Thursday to discuss its continuing, six-month deal to
drop production by 1.8 million barrels, which leaders have said may
get an extension through next winter. Comments along those lines
from OPEC officials and from Saudi and Russian leaders haven't
received as much attention as they may have deserved, analysts at
Credit Suisse Group AG said in a note Monday morning.
They are "fully aware that their efforts so far have broadly
failed and that either the group abandons active supply management
entirely, or it becomes more serious. It looks as if producers will
get serious," said the analysts, led by Jan Stuart.
U.S. crude for June delivery recently gained 34 cents, or 0.7%,
to $50.66 a barrel on the New York Mercantile Exchange. The June
contract expires at settlement, and the more actively traded July
contract recently gained 36 cents, or 0.7%, to $51.03 a barrel.
Brent, the global benchmark, gained 24 cents, or 0.5%, to $53.85 a
barrel on ICE Futures Europe.
Major oil producers will join OPEC members in Vienna to discuss
extending their 6-month agreement to cut production by 1.8 million
barrels a day set to expire in June. There is near-unanimity among
watchers that the deal will be extended, with the only real
questions being for how long and whether cuts are more severe.
"Crude is increasingly pricing in expectations that production
cuts will be rolled over into 2018," said consultancy JBC Energy in
a note, adding that maintaining the cuts beyond the original
six-month period is critical to keeping WTI above $50.
Gordon Kwan, head of regional energy research at Nomura, said
deeper production cuts of more than 2 million barrels a day may be
on the card as Saudi Arabia is showing signs of impatience with the
pace of rebalancing, which is happening slowly as U.S. producers
have stepped up output this year.
The investment bank estimates OPEC has been 90%-compliant with
the promised cuts so far, but the rebalancing of supply and demand
could still be as far as 18 months away, after the buildup of
stocks over the past three years.
The risk of a long extension to the cuts is that it could
further encourage U.S. shale output, said Capital Economics. But
even with higher U.S. supplies, the oil market under OPEC-led
production caps would eventually move toward a "significant
deficit."
U.S. shale oil producers have been steadily ramping up
production with the Energy Information Administration forecasting
U.S. output to hit a record of nearly 10 million barrels a day in
2018.
Most of that growth comes from the Permian Basin, but even rapid
growth there of about 1 million barrels a day by the end of 2018
leaves a supply gap, analysts at Raymond James Financial Inc. said
in a note Monday. It is far below cuts from OPEC at a time when
demand is likely to keep growing strong, said Justin Jenkins,
analyst at the firm.
"We have one of the most (if not the most) aggressive 2017-18
Permian production growth forecasts...but we don't think it will be
sufficient to oversupply the oil market in the near future," he
said. "OPEC probably gets there without the cuts, but it
accelerates the rebalancing if they keep them going."
Gasoline futures recently gained 0.3% to $1.6571 a gallon and
diesel futures rose 1% to $1.5977 a gallon.
Sarah McFarlane and Biman Mukherji contributed to this
article
Write to Timothy Puko at tim.puko@wsj.com
(END) Dow Jones Newswires
May 22, 2017 12:17 ET (16:17 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.