Saudi Arabia comes to rescue of oil markets, but sentiment remains fragile
Last week’s comments from Saudi Arabia’s Energy and Industry Minister Khalid Al Falih on the extension of the six-month output cut may continue to sooth frayed nerves, especially among traders who are still reeling from falling oil prices, but analysts say positive sentiment still remains fragile.
On Friday, Brent crude traded at $51.76 per barrel, after falling more than 10 per cent from the recent high of $57 per barrel. The drop was triggered by rising US oil inventories and shale output.
“The soothing comments from Saudi Arabia and the first, small drop in US oil inventories this year helped stop crude oil’s aggressive price correction,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Al Falih said a deal to cut oil output by the Organisation of the Petroleum Exporting Countries (Opec) could be extended if inventories remain above average.
In November, Opec and some non-Opec producers agreed to cut production from January 1 to reduce record stocks of global crude oil, but the deal has been dampened by data showing persistently rising US stockpiles.
“But the sentiment remains fragile at this stage, with Opec potentially being forced to extend current production cuts beyond six months to achieve its goal of balancing the market,” Hansen said.
“An extension of the deal would require Opec and non-Opec producers to agree. There have been signs of frustration from Saudi Arabia related to slow compliance from Russia and Iraq. The question remains how a deal would survive for a full 12 months given the signs of unease after just 2-1/2 months,” Hansen added.
Analysts feel that shale production need to monitored carefully.
“The current prices are sufficient to support increased activity. However, reliable models of increased rig count and corresponding production predict a modest increase and is, likely to be offset by an extension of production discipline from the Opec producers,” Vaqar Zuberi, head of hedge funds at Mirabaud Asset Management said.
US drillers added oil rigs for a ninth week in a row, extending a recovery that is expected to boost shale production by the most in six-months in April.
Drillers added 14 oil rigs in the week to March 17, bringing the total count up to 631, the most since September 2015, energy services firm Baker Hughes Inc said.
Meanwhile, futures positioning showed that recent rout pushed many speculators to bail out of long positions. The US Commodity Futures Trading Commission said Friday that net long positions in the crude futures market fell by more than 86,000 contracts, the biggest one-week reduction on record.
Source: Gulf News