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Recent oil market, for future reference

2018-05-11 11:12:28

OPEC's plan to raise the price of oil by cutting production has failed, but now it looks as if it has no choice but to bite the bullet. Since Opec first agreed to cut production in November, crude prices have lost all the gains they made. Despite the implementation of production controls, a rebound in U.S. shale production and stubbornly high inventories suggest that the world's three-year crude glut has not fundamentally improved. Even though Saudi Arabia and Russia have signaled that they will cut production, they have not broken the situation. However, when Opec meets in Vienna on May 25 to discuss a deal to cut production, they also have limited room for manoeuvre and will almost certainly stick with it as the alternatives look even worse. According to UBS Group AG, if OPEC were to deepen its production cut agreement, more shale oil could be on the way. According to Citigroup Inc., if OPEC abandons the production cut strategy and resumes production, it will lead to an economic distress of crude oil prices below $40. Giovanni Staunovo, an analyst at Zurich-based UBS, said: "The risk of a bigger OPEC cut is that it could trigger too large a rise in oil prices and support U.S. shale producers." And if they change their strategy, Saudi Arabia will lose face. You can't just say you want less inventory and then throw in the towel a few months later." Oil prices, which fell to a five-month low of $43.76 a barrel in New York on Friday, were locked at $45.46 at 6:34 a.m. local time. Even after Russian energy Minister Alexander Novak issued a statement saying that his country was "inclined to extend the production cut agreement to the second half of the year," it still could not stop the slide in oil prices. He was speaking in response to his Saudi counterpart, Hhalid al-Falih, who said on April 26 that they had a preliminary consensus to continue the production cut deal and had the support of other OPEC countries such as Kuwait and Iraq.