Oil Prices Could Rise to $100

Image oil prices BLOOMBERG

Image oil prices BLOOMBERG

Oil rallied above $69/bbl after a surprise drop in US inventories added to signs the market is in balance before a key OPEC meeting.

Oil prices rose to their highest level since late 2014 after government data indicated US crude stockpiles fell last week and as the market continued to worry about supply disruptions in key oil producing nations. Tighter supplies in the market increase the importance of production threats, ranging from Venezuela's economic collapse to the risk of the U.S. reimposing sanctions on Iran's oil exports.

It's worth mentioning that Saudi Arabia plans to sell a 5% stake in their largest oil company, Saudi Aramco, and launch the biggest IPO in history, valued at $100Bln. The shale oil sector's resilience is thanks to technological advances and lower production costs that not only has set OPEC on its heels but could soon dethrone Russian Federation as the world's largest oil producer. Rocket attacks by rebels in Yemen on top oil exporter Saudi Arabia have also contributed to oil's geopolitical risk premium.

The Organization of the Petroleum Exporting Countries, Russia and several other producers began to reduce supply in January 2017 in an attempt to erase a glut. USA gasoline demand surged to a record high of 9.9 MMbbl a day before the summer driving season when consumption typically peaks.

On Friday, OPEC and Russian officials will meet in Jeddah, Saudi Arabia, to discuss exactly that, prolonging the cuts beyond the planned expiration at year's end.

Mr Tran pointed to the "wealth disparity" among Opec members such as Venezuela and Nigeria which required a much higher breakeven price for oil on a fiscal basis, necessitating cuts to remain in place for much of the year.

Total U.S. inventories of crude and fuel dropped below their five-year average for the first time since 2014, government data showed Wednesday. "The market still needs support". "But OPEC is unlikely to make any changes in June, maybe by the end of the year".

The cuts have been even bigger than those specified in the deal, thanks in part to a slide in Venezuelan production due to an economic crisis in the South American country. More than 530,000 contracts changed hands on CME Group (Kuala Lumpur: 7018.KL - news) 's New York Mercantile Exchange, compared with an average daily of about 615,000 contracts. "We need to have more investments coming".

OPEC's Joint Ministerial Monitoring Committee will recommend to OPEC whether the deal should be extended into 2019.

"Even if we reach the five-year average before June, it does not mean we just go and open the taps", a third OPEC source said.

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