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Committee looking to extend the OPEC production cut


yota691
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2 hours ago, nannab said:

Thank you Yota and good morning DV.

 

Good Morning, NannaB!

 

How are you and your coffee (or morning beverage) doing this morning?

 

All caffeined up an ready for the RV like me? :o

 

Go Moola Nova!

:twothumbs:

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A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie, Oklahoma September 15, 2015.    REUTERS/Nick Oxford
A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie, Oklahoma September 15, 2015. REUTERS/Nick Oxford
 
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By Stephen Eisenhammer | LONDON

LONDON Oil prices were heading on Friday for a second week of gains on growing expectations that big crude exporters will extend output cuts to curb a persistent glut in inventories.

Brent crude LCOc1 was up 77 cents at $53.28 at 1328 GMT (9.28 a.m. ET), its highest since April 21, while U.S. benchmark crude oil CLc1 was up 67 cents at $50.02.

Since the start of March, the Brent price has swung from more than $56 a barrel to less than $47 as opinion swayed over whether cuts by the Organization of the Petroleum Exporting Countries and other producers will offset rising U.S. output.

"The battle between bulls and bears is raging on oil," said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

"On the one hand, you have traders who worry about the efficacy of OPEC's oil cuts on inventory levels. On the other, there are those who are focused on the real drawdowns that have started to occur in U.S. oil stocks over the past month or so," he said.

Saudi Arabia and non-OPEC Russia have said they see a need for an extension to output reductions. The initial agreement between OPEC and other producers was for cuts of 1.8 million barrels per day (bpd) to run through the first half of 2017.

OPEC and other producers are due to discuss an extension during an OPEC meeting on Thursday.

"One of the biggest difficulties facing the cartel, however, is that there is a lag between output cuts and inventory changes," Bank of America Merrill Lynch said in a note.

It said OPEC-led cuts take about three quarters to start drawing down inventories but U.S. shale producers can ramp up output in just four quarters to fill in the gap left.

Russia's largest oil producer Rosneft said on Thursday it was ready to stick to crude output agreements with OPEC.

But there are signs that Saudi Arabia, OPEC's largest producer, is keeping markets well supplied. Its crude exports rose by 275,000 bpd in March from February and its stockpiles also increased, official data showed on Thursday.

"I think the cuts are enough to stabilize the market. I think they will likely bring some stock draws but I don't think it will bring the stock draws that OPEC is hoping for," said Olivier Jakob, managing director at Petromatrix.

 

(Additional reporting by Aaron Sheldrick and Henning Gloystein; Editing by Edmund Blair and David Evans)

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Published: May 19, 2017 10:54 a.m. Saudi Aramco IPO will factor into OPEC’s decision: economist

MW-FM684_oil_op_20170517163657_ZH.jpg?uuid=91f2885c-3b40-11e7-ba38-9c8e992d421eAFP/Getty Images
May 25 marks decision time for 13 OPEC member states. (Indonesia’s membership was suspended in late 2016)
myraSaefong_100.png

By

MyraP. Saefong

Markets/commodities reporter
 

OPEC will hold a highly anticipated meeting next week, with nearly everyone so far predicting that members will agree to extend production cuts at least through the end of this year.

But that’s not the Organization of the Petroleum Exporting Countries’ only option at its May 25 meeting in Vienna. Members will have to take a lot into account—including the initial public offering for part of Saudi Arabia’s state-owned oil company Saudi Arabia Oil Co., known as Saudi Aramco, planned for next year.

“The main, critical element in this market is the Saudi Aramco IPO,” Bodhi Ganguli, lead economist at Dun & Bradstreet, told MarketWatch in an interview. Saudi Arabia, OPEC’s biggest crude producer, will do its “best to keep prices at a level where it makes sense for them to have their IPO.”

So, the “Saudis are going to try their best to maintain the cuts at the very least,” and there is some chance that the cuts will be increased, said Ganguli.

OPEC members agreed late last year to cut collective production at the start of 2017 by 1.2 million barrels a day for six months. Non-OPEC producers, including Russia, also agreed to cut their output by another, roughly 600,000 barrels a day.

“The production cuts are providing a floor on [oil] prices,” said Ganguli. “Prices would have been lower if we did not have the production cuts.”

 

“Whether that’s exactly as OPEC members had wanted…or [whether] that’s enough to guarantee them higher market share down the line will be clear, of course, in the next few months,” he said.

A monthly report from the International Energy Agency released Tuesday pegged OPEC’s member compliance with the cuts at 96%—a historically high compliance rate for a group whose members had previously been known to cheat on production limits.

Despite the output reductions which kicked in at the start of the year, however, Brent oil prices LCON7, +2.21% the global benchmark, and U.S. benchmark West Texas Intermediate CLM7, +2.21% CLN7, +2.17%  have each lost roughly 8% year to date.

“In terms of delivering an initial boost to the price, the production cuts were successful,” said Ganguli. But in terms of whether this will be sustained—that would depend on “adherence to the supply cuts” and global demand expectations, as well as factors outside of OPEC’s control, including U.S. production, he said.

Probable outcome

OPEC is most likely to extend the current production-cut agreement by six months, Ganguli said, giving this scenario a 75% probability rate.

“This is what we have built into our price forecast for the year,” he said. Dun & Bradstreet expects Brent crude-oil prices to average $55 a barrel this year.

‘Even if we extend the cuts just at the current level, they should be enough to support the price in the range that we’re looking at—about $55 a barrel/ for Brent. Bodhi Ganguli, Dun & Bradstreet

U.S. oil-rig counts have been going up, but production isn’t rising as rapidly as would be expected, because it takes time for the increased oil activity to translate into more barrels in the market, said Ganguli.

The global economy, meanwhile, is likely to improve in the second half of the year, and if that happens, would provide support to prices, he said. Given all of that, this “baseline” scenario makes sense.

“Even if we extend the cuts just at the current level, they should be enough to support the price in the range that we’re looking at—about $55 a barrel” for Brent, he said.

Possible outcomes

Still, there are three other unlikely, but possible outcomes for the OPEC meeting, according to Ganguli.

OPEC may just decide to end the output-cut agreement altogether, he said.

This would result in a slump in oil prices, said Ganguli, noting that he doesn’t have specific prices attached to this scenario because that would “depend on a large number of factors other than the OPEC decision itself.”

Overall, he sees this outcome as unlikely, with a 15% probability.

Compliance with the current cuts has been high—higher than Ganguli expected. And “there is some evidence that this is having an effect on global oil prices,” so the agreement producers have in place “seems to be working for now,” he said.

Then there’s the possibility that the agreement is extended, but with a “more stringent” cut, said Ganguli, pegging the chances of this happening at just 10%.

This would see prices increase from their present range in the short term, but there’s a big problem with this particular scenario: a price increase from putting more stringent output reduction requirements on members would create “an incentive to cheat,” he said.

There would be the “higher risk of a break down in the agreement to noncompliance,” said Ganguli.

This may also feed more oil investment in the U.S., and domestic production is likely to respond to that, he said.

Finally, OPEC may decide to extend the pact but lower the reduction requirement, said Ganguli, but the chance of that is set at just 5%.

Aftermath

Whatever the outcome of the much-anticipated meeting, oil producers will still face a dilemma.

“Medium-term risk” for the oil market comes into play after the Saudi Aramco IPO sometime next year, said Ganguli.

If prices drift significantly higher than the Dun & Bradstreet $55 forecast after the IPO, that will create incentive for some OPEC members to cheat, he said.

At that point, the Aramco IPO would be done, the Saudis may refuse to put up with noncompliance, the deal expires and then everybody starts producing more, including the Saudis,” he said. “That would pressure prices significantly again, and “that’s when the market share [issue] comes into place.”

OPEC will have to reassess the oil market—decide whether to extend the production cuts and take a close look at demand and global economic growth, said Ganguli.

“Oil markets…[are] never exactly balanced,” but for now, the market is “moving from an oversupply situation to some sort of balance,” he said—and a six-month extension to the output-cut deal will feed a drawdown in global supplies.

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4 hours ago, Wiljor said:

 

A super day up to ya nannab :tiphat:

 

Thank you dear Wiljor you also. I just read the latest email and it looks

like that we all will be having a great month !!!:praying: fingers and anything else that can be crossed.

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5 hours ago, Synopsis said:

 

Good Morning, NannaB!

 

How are you and your coffee (or morning beverage) doing this morning?

 

All caffeined up an ready for the RV like me? :o

 

Go Moola Nova!

:twothumbs:

 

 Good afternoon Synopsis yes I love my coffee in the early morning. We are going to have

a great month according to the latest email.  GO MOOLA NOVA!!!!!    YES YES YES YES

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1 hour ago, nannab said:

 

 Good afternoon Synopsis yes I love my coffee in the early morning. We are going to have

a great month according to the latest email.  GO MOOLA NOVA!!!!!    YES YES YES YES

 

Well Said, NannaB! I concur - Oh, Yeah!

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1 hour ago, nannab said:

 

 Good afternoon Synopsis yes I love my coffee in the early morning. We are going to have

a great month according to the latest email.  GO MOOLA NOVA!!!!!    YES YES YES YES

"Might" have a great month. Maybe. 

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1 hour ago, nannab said:

 

 Good afternoon Synopsis yes I love my coffee in the early morning. We are going to have

a great month according to the latest email.  GO MOOLA NOVA!!!!!    YES YES YES YES

so far so good I guess

I was reading the obituaries this am

didn't see my name again

so still a ok month

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