Another big test today for OPEC and Russia’s plan to cap production to drain the global oil glut when parties to the production deal meet in St Petersburg in Russia – a meeting that is widely expected to fail to reach any substantive agreement.
In fact there’s little expectation 10 of the world’s largest producers will move to enforce the cap, or even recommend tougher action at the meeting which is supposed to review the deal which was extended to next March at a ministerial meeting in May.
At the same time some of the world’s biggest producing companies will report quarterly and half year figures this week and next and investors will be looking for a sign of what they see as happening to production and prices over the next year and more.
There are now growing signs that some of these companies may be about to step up their cost cutting because they do not see an early rise in the
Since late May meeting, oil prices have fallen a bear market and global stocks remain high, even though there has been a noticeable fall in US oil stocks in the past two months. US production continues to rise and is now well over 900,000 barrels a day higher than it was a year ago.
The problem for OPEC and Russia and the others in the agreement is that the implementation of production cap is not only being undermined by rising US output (from shale basins), but Libya and Nigeria – two OPEC members outside the agreement – are now boosting production to make up for disruptions in the past year.
So far there are no signs of anyone wanting to abandon the production cap deal, even if there are signs of some countries lifting output above their cap (Saudi Arabia?).
On Friday night we saw oil end at its lowest level in a week ahead of the meeting as some nervy traders saw little chance of a major change and tightening of the cap at the meeting in Russia.
Reuters reported that tanker-tracking firm Petro-Logistics said on Friday oil production from OPEC members is set to rise by 145,000 barrels a day this month to more than 33 million barrels a day. That news sent prices to fresh intraday lows.
But prices finished just above those lows after Baker Hughes released weekly figures showing the second fall in the number of active US oil rigs in the past 26 weeks – it was a whole 1 (the previous fall two weeks ago was 2). That saw the number of rigs end at 764 this week and the total number of oil and gas rigs fell by 2 to 950. US oil stocks fell 4.7 million barrels to just over 490 million, still very high by historical levels. Domestic US production though rose another 32,000 barrels a day to 9.429 million barrels a day, up 935,000 from a year ago.
So, September West Texas Intermediate crude futures dropped lost $US1.15, or 2.5%, to settle at $US45.77 a barrel in New York after a low at $US45.71. That was the lowest since July 12, according to FactSet data.
For the week, the contract saw a loss of roughly 2.1%.
In London September Brent crude futures fell $US1.24, or 2.5%, to $48.06—down about 1.7% from a week ago.
