OPEC's biggest challenge - rebalancing US oil market
Baku, Azerbaijan, May 22
By Leman Zeynalova – Trend:
Rebalancing US crude markets will continue to be a struggle, even if OPEC delivers a renewed deal, according to the forecasts of the US JP Morgan bank.
The US accounts for 45 percent of the current OECD (Organization for Economic Co-operation and Development) stockpile, as opposed to an average of 42 percent over 2011-2015, according to the report obtained by Trend.
“Hence the US holds a greater share of the excess inventory versus the five-year average level. This should not come as a surprise, given the US is the epicenter of the shale oil supply shock that has unbalanced markets over the past three years,” said the JP Morgan analysts. “Consequently, if OPEC is to achieve its goal of tightening up global inventories, then the adjustment will need to include US markets.”
Regarding the possibility of extending the OPEC oil output cut deal, the analysts believe that a nine-month deal would likely be met with a positive, albeit muted, price reaction.
“We reiterate the view that a shorter agreement period but with deeper cuts would prove the optimal solution to the quandary facing OPEC members, but this outcome appears to lack the political will to be achieved,” said the report.
In December 2016, OPEC and non-OPEC producers reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices.
Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce output by 558,000 barrels per day starting from Jan. 1, 2017 for six months, extendable for another six months.
OPEC agreed to slash the output by 1.2 million barrels per day from Jan. 1.
Russia and Saudi Arabia earlier said that they will propose during the OPEC meeting to be held May 24-25 the extension of the oil output deal by nine months.
The two countries agreed to do whatever it takes to achieve the desired goal of stabilizing the market and reducing commercial oil inventories to their 5 year average level, as well as to underscore the determination of oil producers to ensure market stability, predictability and sustainable development – the joint actions of the participating producers should be extended by 9 months, through March 31, 2018.
Follow the author on Twitter: @ Lyaman_Zeyn