OPEC and oil prices: Looking ahead to the May meeting

Big Jumps Followed by Calm

Big Jumps Followed by Calm

Brent crude traded at $52.39 a barrel on Monday, up 3.05 percent, while USA crude was around $49.45 a barrel, rising 3.37 percent.

The U.S. Energy Information Administration said on Wednesday that crude inventories USOILC=ECI fell 1.8 million barrels for the week to May 12, to 520.8 million barrels.

"For the global crude markets, fundamental demand strength in the coming weeks may have to come from seasonal gains in refining runs in Europe and Asia, led by China - provided that product demand and refining margins remain healthy".

JPMorgan is forecasting USA shale to grow by 1.05 million barrels a day next year, while Bank of America Merrill Lynch has a figure of 950,000 barrels a day. Russian Federation and Saudi Arabia have put messages out saying they might be interested in continuing the OPEC cuts until March 2018.

Oil shipments from North Sea to Asia have also increased to 19 tankers in the same time period.

On Monday the EIA said that production from seven major US shale plays should jump by 122,000 BPD to 5.401 million in June from the prior month. USA benchmark crude was up 61 United States cents at US$49.96 a barrel.

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"On the one hand, you have traders who worry about the efficacy of OPEC's oil cuts on inventory levels".

It said OPEC-led cuts take about three quarters to start drawing down inventories but USA shale producers can ramp up output in just four quarters to fill in the gap left. The U.S. benchmark for oil is competitive against Dubai crude oil, which had a $2.20 per barrel premium on WTI in early Thursday trading, and drawing the interest from Asian buyers.

According to the report, commercial inventories decreased for a second straight month in March, by 32.9 million barrels to 3.025 billion barrels. The decline was mostly due to countries outside of OPEC, such as Canada.

OPEC leader Saudi Arabia has said it wants to see prices above $60 per barrel by the end of the year and promised to do "whatever it takes" to help clear a global glut.

"Even if we extend the cuts just at the current level, they should be enough to support the price in the range that we're looking at-about $55 a barrel" for Brent, he said. But U.S. oil producers are not paying any attention to the plea, and the number of rigs has more than doubled over the past year. "Still, we shall see demand growth of around 1.3 million barrels a day outpace supply growth by at least 500,000 barrels a day".

"Medium-term risk" for the oil market comes into play after the Saudi Aramco IPO sometime next year, said Ganguli.

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