Oil prices rose nearly 3% on Tuesday, a sign that the market may finally be stabilizing after years of oversupply. This news was prompted primarily by Saudi Arabian export cuts. In observance of the OPEC-led supply reduction pact, Saudi allocations for November have been reduced by 560,000 barrels per day.
Additionally, Russia and other producers have agreed to cut production by about 1.8 million barrels per day until March 2018. OPEC has become increasingly optimistic at the speed at which the market has rebalanced.
Short-term price support also came from the United States, where 85% of the U.S. Gulf of Mexico oil production (roughly 1.49 million barrels per day) has been offline following Hurricane Nate.
Torbjorn Tornqvist, the chief executive of trading firm Gunvor, reiterated the signs of an increasingly rebalanced market also citing falling product stocks and stronger-than-expected growth in global demand. However, he added that overall crude stocks “are still high” alluding to the importance of OPEC’s continued output curbs.
Despite having fallen, global stockpiles remain well above the five-year average targets OPEC has set.
Due to its success, OPEC is reportedly considering extending the deal beyond the current March expiration date. Mohammad Barkindo, secretary-general of OPEC, said earlier this week that there was a “growing consensus” that the rebalancing process was under way and sustaining the process into next year would mean “extraordinary measures may have to be taken.” Barkindo also hinted that even more oil-producing nations may join the pact at next month’s meeting in Vienna.
OPEC urged U.S. shale producers on Tuesday to cut back production citing a global responsibility to respond to the supply glut. “We urge our friends in the shale basins of North America to take this shared responsibility with the seriousness it deserves, as one of the key lessons learned from the current, unique supply-driven cycle,” said Barkindo, later adding “We all, at the end of the day, when all is said and done, belong to the same industry and operate in the same markets.”
U.S. crude has enjoyed an impressive rebound from $49.08 to over $51.00 per barrel. Some estimates predict it could climb to as high as $52.40 in the near future.
Article written by HEI contributor Kevin Abbott.