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OIL AND GAS
Oil prices get modest lift from OPEC, but pressures linger
by Daniel J. Graeber
New York (UPI) Feb 16, 2017


OPEC cuts not doing the job, analyst says
Zurich, Switzerland (UPI) Feb 16, 2017 - Production cuts from the Organization of Petroleum Exporting Countries aren't enough to cut global crude oil supplies, a market analyst said Thursday.

OPEC members, and coordinating non-member states, last year agreed to hold production levels steady in an effort to erase a glut of oil on the market. An oversupplied market last year pushed oil to historic lows and OPEC's agreement is aimed at restoring balance.

Market watchers estimate a compliance rate of about 90 percent so far. Saudi Arabia is the largest contributor to overall cuts and secondary sources reported total OPEC production at 32.1 million barrels per day at the end of January, a decline of 2.7 percent from December and below the target range.

Libya and Nigeria are exempt from the agreement as they depend on revenue from their energy sectors to help ensure national stability. Iran, meanwhile, is the only member state allowed to increase its production as it looks to regain a market share lost to nuclear-related sanctions.

Olivier Jakob, managing director of Switzerland-based consultant Petromatrix, said in an emailed report that OPEC's goals through the duration of the six-month agreement depend in large part on how much production comes from members operating outside the deal.

"The OPEC cuts are not enough to reduce global crude supplies in the first half of the year compared to a year ago, they are just enough to maintain supply about unchanged versus last year," he said in the report.

By the estimates of his group, total global crude oil supplies would be slightly higher than last year during the first half of the year if OPEC's production levels through January hold through the duration of the agreement.

The terms of the agreement signed in November said the deal could be extended for another six months "to take into account prevailing market conditions and prospects."

Crude oil prices have moved in peaks and troughs in day-to-day trading, but kept within a narrow band around $55 per barrel for most of the year so far. U.S. shale oil, already more resilient than expected, should start to recover in early 2017 and potentially add to emerging supply-side concerns.

"We should however keep in mind that the global supply and demand balances are not for crude demand versus crude supply but for oil product demand versus crude oil supply," Jakob added.

Oil prices got a modest lift early Thursday on word OPEC may be upping the production cut ante, but gains were balanced by signs of Russian production growth.

A research note emailed from broker PVM suggests delegates at a May meeting of members of the Organization of Petroleum Exporting Countries may consider deeper cuts than already implemented under a six-month deal that began in January.

Libya and Nigeria are exempt from the deal and Iran has room for production growth as it seeks to regain a market share lost to sanctions. Saudi Arabia, the largest producer and de facto head of OPEC, has cut its output more than any other and total group production is already below the 32.5 million barrels per day target.

PVM finds the May meeting could lead to an extension of the deal for another six months, though market reactions were muted as the November provision mandating the cuts already included a clause on a six-month extension.

The price for Brent crude oil was up 0.6 percent from the previous close to $56.10 about a half hour before the start of trading in New York. West Texas Intermediate, the U.S. benchmark price for oil, gained 0.5 percent to $53.41 per barrel.

Crude oil prices came under heavy pressure last year as markets favored the supply side, leading OPEC to intervene in an effort to restore balance. Olivier Jakob, managing director of Switzerland-based consultant Petromatrix, said in an emailed report that OPEC cuts so far aren't enough to reduce global supplies, "they are just enough to maintain supply about unchanged versus last year."

Elsewhere, PVM reports that Russian crude oil exports could increase by more than 5 percent this year even as it clings to its commitments to OPEC's managed decline agreement as a non-member participant. For other non-members, Norway, which is not party to the agreement, said job openings were on the rise in its oil and gas sector.

U.S. Federal Reserve Chair Janet Yellen this week painted a picture of general optimism, giving markets a boost. Markets, however, could be tempered further by reports from the U.S. Labor Department on first-time claims of unemployment.

Labor has been a lingering bright spot for the U.S. economy, though seasonally adjusted initial claims for the week ending Feb. 11 showed an increase of 5,000 from the previous week.

The less-volatile four-week moving average showed an increase of 500 and the previous week's average was revised upward in parallel.


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