Oil prices fall on Opec deal to raise output, but markets to remain tight
Brent crude oil decline over 1.5% as traders factor in an expected output increase that was agreed at Opec meeting in Vienna
Singapore: Brent crude oil prices fell over 1.5% on Monday as traders factored in an expected output increase that was agreed at the headquarters of the Organization of the Petroleum Exporting Countries (Opec) in Vienna on Friday.
Despite this, analysts said global oil markets would likely remain relatively tight this year.
Brent crude futures were at $74.22 per barrel at 10.25am, down 1.8% from their last close. US West Texas Intermediate (WTI) crude futures were at $68.42 a barrel, down 0.2%, supported more than Brent by a slight drop in US drilling activity and a Canadian supply outage.
Prices initially jumped after the Opec deal was announced late last week as it was not seen boosting supply by as much as some had expected.
Opec and non-Opec partners including Russia have since 2017 cut output by 1.8 million barrels per day (bpd) to tighten the market and prop up prices.
Largely because of unplanned disruptions in places like Venezuela and Angola, the group’s output has been below the targeted cuts, which it now says will be reversed by supply increases, especially from Opec leader Saudi Arabia. Although analysts warn there is little space capacity for large-scale output increases.
“Saturday’s Opec+ press conference provided more clarity on the decision to increase production, with guidance for a full 1 million bpd ramp-up in 2H18,” Goldman Sachs said in a note on Sunday.
“This is a larger increase than presented Friday although the goal remains to stabilize inventories, not generate a surplus,” the US bank added.
Edward Bell, commodity analyst at Dubai’s Emirates NBD bank said “any increase in production would be borne most significantly by Saudi Arabia, the UAE and Kuwait.”
Pricing the Vienna agreement into the market, Bell said he expected prices “in a range between $65-$70 per barrel for Brent for the remainder of the year.”
In the United States, U.S. energy companies last week cut one oil rig, the first reduction in 12 weeks, lowering the total rig count to 862, Baker Hughes said on Friday.
That put the rig count on track for its smallest monthly gain since declining by two rigs in March, with just three rigs added so far in June. However, the overall level remains just one rig short of the March 2015 high from the previous week.
Goldman Sachs also warned that an “outage at Syncrude Canada’s oil sands facility could leave North America short of 360,000 bpd of supply for all of July.” It added that this “will exacerbate the current global deficit, making the increase in Opec production all the more required.”
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