Success of OPEC deal still in doubt

In the past fortnight (from December 15 to 29, 2016), WTI and Brent oil prices gained around 4 per cent and 6 per cent, respectively, while on the MCX, oil prices rose by around 5.2 per cent in the same time frame. The past fortnight saw oil prices gain by a good margin on account of anticipation of oil output cut by the OPEC nations. The group would take a cut of around 1.8 mbpd starting January 2017 while Russia, the non-OPEC producer, agreed for a cut of around 600,000 barrels a day. Historically, however, when the Organisation of the Petroleum Exporting Countries (OPEC) has initiated a cut, some of its members seemingly have not adhered to it. 

The positive sentiments in the oil market has been the result of optimism in the US wherein the GDP growth rose by around 3.5 per cent in the third quarter while the US consumer confidence index climbed to 113.7 in December from 109.4 in November and the highest since it reached 114 in August 2001. In the US, crude inventories remained a cause of concern, as oil storage increased for most part of 2016. Calendar year 2016 started the absolute inventory at around 451 million barrels and the current inventory as on December 23 stood at 486 million barrels, marking an increase of around 35 million barrels. 

On the other hand, investment activity in the oil sector increased recently after a recovery in crude oil prices. There are two significant merger and acquisition exercises following Royal Dutch Shell’s $54 billion acquisition of BG Group in February, which pointed to a turnaround for oil majors.  Also, On December 16, BP announced signing of agreements with Kosmos Energy to acquire a 62 per cent working interest, including operatorship, of Kosmos’ exploration blocks in Mauritania and a 32.49 per cent effective working interest in Kosmos’ Senegal exploration blocks. 

The way forward 

Right after the OPEC deal, US shale oil companies used this as an opportunity to hedge oil price risk between 2017 and 2019 at above $50 a barrel. This means producers are looking to lock in future cash flows and sales prices at above $50. This also implies that the $50 level will be a buffer for oil prices going forward. Crude oil delivered returns of around 50 per cent during the year and it is likely ti be even better in 2017 with returns of around 30 per cent as the OPEC nations pledge to cut the oil output. The US economy gaining momentum is again a good sign for oil prices. Besides, the easy money policy of the ECB will help crude oil gain further ground. In the next fortnight, we see oil prices (CMP; $54 a barrel) trading higher towards the $57 mark, while on MCX (CMP; Rs 3,677 a barrel), oil prices will move towards Rs 3,850 a barrel. 

2065 views

Read on the subject


More World news

Look to Azerbaijan as a model of peaceful coexistence

Look to Azerbaijan as a model of peaceful coexistence

The first Muslim/Jewish women’s venture of its kind

 Ankara urges EU to mind its own business

Ankara urges EU to mind its own business

European Union should not to interfere in a referendum in Turkey expected on April 16 on changing the country's constitution, Turkish Prime Minister Binali Yildirim said. He added that Europe should "mind its …

Ankara and Minsk discuss political and economic cooperation

Ankara and Minsk discuss political and economic cooperation

Belarus and Turkey held political ministerial consultations in Ankara to discuss the prospects of political, trade and economic cooperation, the press-service of the Belarusian Foreign Ministry said. Belarusian Deputy Foreign …

Lukashenko about his excellent relations with Putin

Lukashenko about his excellent relations with Putin

Belarusian President Alexander Lukashenko says Russian President Vladimir Putin and he will be able to solve problems facing bilateral relations without anyone's help, his press service said. …

Stoltenberg reveals date of NATO-Russia Council meeting

Stoltenberg reveals date of NATO-Russia Council meeting

The NATO-Russia Council will meet at the ambassadorial level at the alliance's headquarters in Brussels on March 30, NATO Secretary General Jens Stoltenberg said. "Following consultations with the members of …

US interested in early settlement of Karabakh conflict

US interested in early settlement of Karabakh conflict

Washington is interested in an early settlement of the Nagorno-Karabakh conflict, reads the letter of the US Secretary of State Rex Tillerson to Azerbaijani Foreign Minister Elmar Mammadyarov, which was sent on …

Iraqi President: I would like to visit Russia

Iraqi President: I would like to visit Russia

Iraqi President Fuad Masum said that he would like to visit Russia although no such visit is planned for the near future. "For the moment, nothing is planned, but I would like to make a visit. I met Russian …

PACE co-rapporteur for monitoring of Azerbaijan to discuss Karabakh in Yerevan

PACE co-rapporteur for monitoring of Azerbaijan to discuss Karabakh in Yerevan

Co-rapporteur of the Parliamentary Assembly of the Council of Europe (PACE) for the monitoring of Azerbaijan, chairman of PACE Monitoring Committee's Sub-Committee for conflicts, Stefan Schennach, left Vienna for Yerevan. …

Inside the key dynamics of Turkey’s economy: Ankara at the crossroads

Inside the key dynamics of Turkey’s economy: Ankara at the crossroads

Spiking trade with the EU was a key ingredient to the Erdogan boom years

Russia-OPEC: two months before dialogue

Russia-OPEC: two months before dialogue

Russia Needs Data on Oil Supply, Markets to Decide on More Cuts

more World news