Volatility returned to the oil market with a sell-off mid-week as oil ministers committed to maintaining the current production cuts if necessary.
In early trading on Friday, Brent crude was priced above US$52 with WTI holding above US$50 a barrel.
Oil ministers met in Abu Dhabi at the bi-annual GCC Petroleum Media Forum and told reporters that a preliminary agreement was in place to extend the production cuts until the market finds a rebalance.
A mini-OPEC gathering..
The meeting resembled a mini-OPEC gathering, complete with OPEC Secretary General Mohammad Barkindo and energy ministers from Oman and Bahrain in attendance.
Apart from committing to greater transparency with the media, ministers spoke frankly about the state of the market.
The mood was upbeat on the impact and compliance of the existing production cuts and the Kuwait oil minister, Essam Al Marzouq said “all twenty-four countries, including Russia are in favour of extension of the agreement”.
In a week when the markets are doubting OPEC’s ability to manage the over-supply on the market, the Secretary General reminded the media that “OPEC was back in the driving seat” and added that “all the 24 producing countries are on the same page” when it comes to the compliance of the production cuts.
He also hinted that the analysts and the media got it wrong in the past when second guessing the unity of OPEC and friends.
Barkindo said that “March compliance figures are more robust than February figures” and the technical committee meets in Vienna today to discuss the progress of the agreement.
Consensus building to extend cuts..
Saudi Arabia’s energy minister Khaled Al Falih said: “consensus is building for the extension of the deal.”
Earlier in the week, Al Falih launched his country’s big push to 10% renewable energy use by 2023.
“The energy mix to produce electricity will change, today the kingdom uses large quantities of oil liquids, including crude, fuel oil and diesel,” but added that investment in oil production must continue.
US output continues north..
US oil production continues to increase while OPEC contemplates an extension of the cut.
When asked about growing American supply, the UAE energy minister Suhail Al Mazroui said he was in favour of maintaining the current production levels, but added that this would “not be for the advantage of others”.
American production has increased about 10% to 9.25 million barrels a day in the past year. American production is now at its highest since August 2015.
A report from Citigroup said that OPEC’s output cuts can offset the US production response and Goldman Sachs Group said the market needs to be more patient.
In a report this week, Goldman Sachs reiterated its confidence in the oil market and said that US inventory was in line with expectations.
The report commented that the fall in price this week was not justified and said it was “technicals rather than fundamentals as the driver of this move lower”.
The bank is forecasting a Brent price of US$59 a barrel for the second quarter of this year.
The oil market is gearing up for the OPEC end of May gathering with two meetings planned on the day.
OPEC will hold its 172nd meeting of the conference in the morning and the Secretary General said this week that the wider group of 24 producing countries will gather in the afternoon.