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OPEC REPORT: Push-pull week for the oil price as Hurricane Harvey approaches

Published: 06:07 25 Aug 2017 EDT

Storm over the globe
The US oil industry is preparing for a very blowy bank holiday weekend

It’s been another week of push and pull for the oil market. The stocks were low, supplies were high, cancelling out hope for any good news to secure stronger sentiment in the market.

In early trading on Friday, Brent crude was priced above US$52 with WTI holding just below US$48 a barrel.

Stormy weather added to the volatility as we approach the weekend. Companies are already preparing evacuations as Hurricane Harvey is poised to disrupt middle Texas and the southern American coast energy corridor with winds of more than a hundred miles an hour on Friday, according to the US National Hurricane Centre.

Production shut in

Reports say about 10% of production has already been shut-in. The bigger concern will be the risk of damage to export refinery infrastructure in Texas as the state has managed to avoid any major hurricane damage since 2008.

American crude inventories fell to the lowest level since January 2016, down 3.33 million barrels, a move that should have pleased the market. Gasoline stocks also fell by 1.22 million barrels. A report from Capital Economics sees a sense of rebalance coming to the market. “A sharp fall in crude oil stocks over the last month has provided further evidence that the market is finally rebalancing and has boosted prices.”

The report goes on to caution that “a jump in supply since May means that stocks are now unlikely to fall by as much as we had previously anticipated.” The boost in US shale production remains the problem.

READ: Royal Dutch Shell, BP downgraded as leading broker turns bearish on the oil price

Output building 

American oil production continues to build strength, even with prices below US$50 a barrel. The efficiencies adopted by the market, especially in the shale plays of West Texas and Oklahoma have meant a sustained increase of working rigs in the area. Domestic oil production is now estimated to be at its highest level since July 2015.

The Energy Information Administration reported that crude output increased by 26,000 barrels a day, to reach a total production of 9.53 million barrels a day from US fields. A recent report from Rystad Energy predicts US production will continue to grow and hit 10.6 million barrels a day in 2018.

The OPEC joint ministerial monitoring committee continues to watch the impact of their cuts and the movements of the market. At a recent meeting, the committee noted a drop in floating storage and focused on the better-than-expected global oil demand for the year ahead. The committee continues to push for stricter compliance to the agreed cuts while giving Libya and Nigeria space to improve their economies. Some analysts believe the two countries might need to be brought into the agreement before the year is out. 

Capital's call

Capital Economics estimates that “output in Nigeria and Libya has soared by about 0.5 million barrels a day since the start of the year, enough to offset almost a third of the supply cuts by the rest of OPEC and its partners.” The next Joint OPEC/Non-OPEC Ministerial Monitoring Committee meeting is scheduled for mid-September in Vienna.

The oil price remains subdued with little momentum in sight that could alter the scenario. Production continues as OPEC members and friends ponder their next move. Their well-meaning collective reduction in production has certainly helped relieve the glut, but American producers have taken it as a signal to maintain and increase production. It might be just a matter of time before OPEC ponders its next move and realises that its hopeful win-win scenario is not playing through for the wider benefit of the industry. 

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