Oil Extends Gains, Investors Eye Next Week’s OPEC Meeting

29 May 2015 | Author: | No comments yet »

Libya Seconds OPEC Output Target as Ministers Head to Vienna.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in July CLN5, +0.81% traded at $58.39 a barrel, up $0.71 in the Globex electronic session. OPEC will maintain its production target next week, Libya’s deputy vice prime minister said, joining Kuwait in predicting no policy change when oil ministers from the 12-member group meet in Vienna.

Despite crude oil’s rebound from six-year lows, the tanker market is sending a clear signal that the rally is under threat, according to a Bloomberg analysis.LONDON: The North American oil boom is proving resilient despite low oil prices, producer group Opec said in its biggest and most detailed report this year, suggesting the global oil glut could persist for another two years. A surge in demand for supertankers drove benchmark charter rates 57% higher in the two weeks through May 20; OPEC will have almost 500M barrels of oil in transit to buyers at the start of June, the most this year, while analysts say ~20M barrels is being stored on ships in another indication the supply glut has yet to dissipate.

A draft report of the Organization of the Petroleum Exporting Countries’ long-term strategy, seen by Reuters ahead of the cartel’s policy meeting in Vienna next week, forecast crude supply from rival non-Opec producers would grow at least until 2017. Daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, according to the Baltic Exchange; while rates have since retreated to $65,784, they are still the highest for this time of year since at least 2008. “There still seems to be a lot of physical activity, a lot of oil on the water,” says the head of research at Hartland Shipping in London; while Q2 is usually quieter as refineries switch to summer fuels for the Northern Hemisphere, “the market is still busy and rates are incredibly high.” Sluggish global demand for oil means the call on Opec’s crude will fall from 30 million barrels per day (bpd) in 2014 to 28.2 million in 2017, effectively leaving the group with two options — cut output from current levels of 31 million bpd or be prepared to tolerate depressed oil prices for much longer. “Since June 2014, oil prices have experienced a significant reduction, reaching levels even lower than the crisis experienced in 2008, yet non-Opec supply is still showing some growth,” the Opec report said. Brent crude has collapsed from $115 a barrel in June 2014 due to ample supplies amid a US shale oil boom and a decision by Opec last November not to cut output. However, U.S. crude production jumped to 9.57 million barrels a day, breaking out of the production plateau it has been coasting on since March, partly due to new oil fields ramping up in the Gulf of Mexico, Societe Generale said in a report. “With OPEC’s June 5 meeting right around the corner and no chance of a policy change, we will continue to focus on U.S. production and production costs,” the bank said.

Over the very long term, the economic threshold at which oil companies invest in upstream projects likely reflects their long-term oil price expectations.” It also said that since 1990, most of the forecasts concerning future non-Opec oil supply have been pessimistic and often erroneous: “For example, non-Opec production was once projected to peak in the early 1990s and decline thereafter.” Opec publishes long-term strategy reports every five years. Saudi Arabia, the group’s biggest exporter, led OPEC’s decision in November to maintain its output target to defend market share amid booming U.S. shale supplies. Its 2010 report did not mention shale oil as a serious competitor, highlighting the dramatic change the oil markets have undergone in the past few years. The long-term report is prepared by Opec’s research team in Vienna and traditionally cautions that it does not articulate the final position of Opec or any member country on any proposed conclusions it contains.

The research firm is bullish on Chinese oil demand and said strategic stock-building and rising consumption from small-capacity teapot refiners will buoy China’s crude imports in the second half of this year and in 2016. Meanwhile, investors are tracking debt negotiations in Greece, preliminary U.S. first-quarter gross domestic product data and U.S. drilling rig-count numbers due later Friday for more cues. It said new and cheaper technologies in extraction of tight crude, shale gas, and oil sands would guarantee aggregate growth at 6% per year and contribute 45% of the growth in energy production to 2035. “Improved technology, successful exploration and enhanced recovery from existing fields have enabled the world to increase its resource base to levels well above the expectations of the past … Nymex reformulated gasoline blendstock for June RBN5, +0.69% — the benchmark gasoline contract — rose 164 points to $2.0015 a gallon, while June diesel traded at $1.8856, 152 points higher.

The world’s liquids resources are sufficient to meet any expected increase in demand over the next few decades,” it said. “With plenty of oil still left in familiar locations, forecasts that the world’s reserves are drying out have given way to predictions that more oil than ever before can be found,” the report said. “By 2019, Opec crude supply at 28.7 million bpd will still be lower than in 2014,” the report said, and demand for its oil “will start rising only after 2018-2019, reaching almost 40 million bpd by 2040.”

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