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Oil bulls scurry for protection against a wave of OPEC supply

31 May, 2018, 22:03 | Author: Shawna Walton
  • Oil prices fall as supply from top three producers set to rise

As Bloomberg notes, oil earlier this month rose to the highest level in more than three years after President Donald Trump's decision to reimpose sanctions on Iran and plunging Venezuelan output fueled supply concerns.

Energy Secretary Alfonso Cusi, who acts as PNOC-EC's ex-officio chairman, has tasked the state firm to prepare for oil trading and retail to provide competition to existing oil industry players and curb increasing prices of petroleum products. That puts the United States ahead of Saudi Arabia and within reach of top producer Russian Federation, which pumps about 11 million bpd.

U.S. crude production has been rising over the last three years along with the global rise in price, as U.S. producers looked to leverage higher oil prices. Some even speculated that oil prices would jump to and probably beyond $100 levels next year. The spread between the two contracts reached $9.38 a barrel, its widest since March 2015.

However, if USA crude exports to Asia do surge to more than 1 million bpd in coming months, this could provide the Saudis and the Russians with an added incentive to make more oil available to the market, and at a more competitive price. Energy ministers from Saudi Arabia, the United Arab Emirates and Kuwait plan to meet in Kuwait City on Saturday to discuss OPEC matters, according to people with direct knowledge of the matter. But now, the memory of oil at US$30 is still too fresh, and a lot of oil consumers enjoyed faster economic growth thanks to cheap oil-they may be unwilling to pay so much more so soon. It confirms our view that while funds must react to short-term price developments the limited exposure seen now could act as the engine that takes gold higher once the technical outlook improves enough to warrant buyers to return.

"The moment is coming when we should consider assessing ways to exit the deal very seriously and gradually ease quotas on output cuts", Novak said in televised comments.

Volatility - a gauge of demand for a particular option - has risen sharply for bearish sell options at around $67 a barrel that expire immediately after OPEC's meeting with its partners that will run from June 22-23. The countries are said to have concluded that the market re-balanced in April.

Current discussions are aimed at relaxing record-high compliance with the production cuts, the sources said, in an effort to cool the market after oil hit $80 a barrel on concerns over a supply shortage.

Meanwhile, surging US crude production showed no sign of abating as drillers continued to expand their search for new oilfields to exploit. There was talk a few months ago that this five-year average may not be the best measure of global oil supply.

The timing of the new regulation will coincide with the effect on supply from the underinvestment during the oil price crash and the strength in demand, suggesting that the "era of "lower for longer" oil prices is dead", Energy Aspects' Sen and Yasser Elguindi wrote in a commentary in the Financial Times this week.

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