Crude Oil Prices Rise by Rebalance Expectations

Crude Oil Prices Rise by Rebalance Expectations
Crude Oil Prices Rise by Rebalance Expectations
Thursday January 26, 2017

Crude oil futures were elevated during mid-afternoon trade on Thursday, after remarks by OPEC member and Kuwaiti oil minister Wednesday that a rebalancing would be achievable within Q1 2017.

At 2:29 pm Singapore time (0629 GMT), ICE March Brent crude futures had risen 47 cents/b (0.85%) from Wednesday's settle to $55.55/b, while NYMEX March light sweet crude was up 43 cents/b (0.82%) at $53.18/b.

Oil market stakeholders could begin to see a balance emerge to close the demand and supply gap in global crude production as early as the first quarter of the year. Despite earlier skepticism from several quarters about the ability of OPEC members to adhere self-imposed quotas in the past, analysts agree that OPEC and non-OPEC countries have made important decrease in production as promised. There has been a relatively high adherence to the Joint OPEC and non- OPEC deal, with 1.5 million barrels per day out of the initially agreed 1.8 million barrels per day having been taken out of the market.

The most significant sign that the deal is having an effect is the clear commitment of producers through their notices to customers informing them of a reduction in supply. Kuwait will reduce crude oil production by 131,000 barrels per day to 2.707 million barrels per day according to OPEC.

As January draws to a close, market participants will wait with for production survey reports depicting producer performance for the first month of the six-month long agreement, most probably using them a leading indicator for the remainder of the tenure of the deal. Till then, crude oil prices could remain well supported on the back of greater speculative interest and consolidation of long positions with the large majority of market participants believing in the efficacy of the cuts stated by analysts. Faith that OPEC led production will eventually send the market higher remains strong enough to keep money managers in long positions.

But several analysts also noted that the long speculative position looked overbought and priced would be unlikely to edge any higher.


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