Why OPEC is having a hard time raising oil prices (Part 3)


In a monthly report, the Organization of the Petroleum Exporting Countries said outside producers would boost supply by 950,000 barrels per day (bpd) this year, up from 580,000 bpd expected previously.

OPEC and the other participating producers will meet on May 25 in Vienna to decide whether to extend the cuts and, potentially, agree a deeper reduction. The OPEC cuts have shown that unconventional oil production in the US will keep coming back like a movie monster.

The fall in WTI 2018 swap prices has made it "unattractive for most USA shale oil producers to hedge", Jesper Dannesboe, a London-based commodity strategist for SocGen, wrote in Friday's report.

"The market is in flux because we've all traditionally said there is this huge price regulator sitting there, that has been OPEC, and I think that model is severely challenged today, ” he said". Saudi Arabia, OPEC's de facto leader, has said it expects an extension to the end of 2017 or possibly beyond.

As a result, OPEC cut the forecast 2017 demand for its crude by 300,000 bpd.

The only good thing for oil prices to change its course now is the summer driving season in the USA which would result in incremental demand for gasoline and in turn the reduction in oil inventories.

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The output cuts he'd painstakingly arranged with fellow OPEC states and Russian Federation were working so well, he said, they could probably be phased out by June.

"Crude prices could be poised for recovery", USA investment bank Jefferies said in a note. Apache Corp. and Anadarko Petroleum Corp., two of the most active hedgers past year, hadn't added significant new contracts as of the end of the quarter, for example. It showed the resilience of US shale production, and it dramatically cut spending in capital intensive projects in non-OPEC producers.

A weekly report by Baker Hughes monitoring United States rigs drilling for new production, was due on Friday.

The increase, OPEC said, represents the biggest increase among countries within the oil producers' group.

US supplies declined by 5.25 million barrels to 522.5 million last week, Energy Information Administration data showed Wednesday.

This week the estimate mushroomed to 950,000 barrels a day, mostly because of a resurgence of USA shale production with a little help from Canada and Brazil.