Wednesday, 12 October 2016

Higher oil prices seen as self-defeating exercise

In Oil & Companies News 12/10/2016

Oil prices photo 03.jpg
A continued rally in crude oil prices may attract many non-Opec countries to raise output.
Oil has gained 13 per cent since September 28, when the Organisation of Petroleum Exporting Countries (Opec) decided to cut output for the first time in eight years at a meeting in Algeria.
The producer group will come out with the country-wise quota at the next Opec meeting in late November.
“The improved outlook is likely to continue to attract buyers but a much higher price at this stage risks becoming self-defeating with the attention turning from the potential Opec reduction to the increased opportunities for high-cost non-Opec producers,” Ole Hansen, head of commodity strategy at Saxo Bank said.
WTI closed at $49.81 per barrel, while Brent crude settled at $51.93 on Friday.
Hopes are slim
Opec countries also want non-Opec producers to cut output.
But hopes are slim of any agreement with one of the biggest non-Opec producer Russia, which on Sunday expected Opec to propose that non-Opec nations consider joining the group in limiting output.
“Despite the rally in oil prices since the surprise announcement two weeks ago from Opec, investors remain sceptical of a binding agreement on crude oil production between Opec and Russia,” Vaqar Zuberi, head of research, Portfolio Manager — Multi Manager Funds at Mirabaud Asset Management said.
And, the biggest elephant in the room has been the US shale oil.
US oil explorers added rigs for the sixth consecutive week on the back of price gains triggered by the Opec decision.
“Sustained oil price in $50-$60 range is likely to induce further production increases, and thereby limit the price increases,” Zuberi said.
Meanwhile, as a reflection, increased activity is also seen in open interest on WTI crude oil on the Nymex futures exchange. The Open Interest hit a record, an indication that producers and hedgers have stepped up activity this past week.

Source: GulfNews