Oil ministers from the Arabian Gulf producers have been making the point strenuously: there is too much focus on the rebound in US output and not enough on what is happening elsewhere.
Prices sank last week on news that US oil drilling was continuing its strong recovery, particularly in the Texas shale oil province.
Benchmark West Texas Intermediate (WTI) crude futures tumbled back below US$50 at the end of last week after the widely-watched Baker Hughes report showed another rise in oil rig use, which has doubled in the past year. Texas dominates and particularly the state’s Permian region, where there has been a near tripling in rig usage since last year with rising production even as oil prices slumped.
The signs of US recovery are widespread, with oil services companies like Schlumberger and Halliburton hiring back thousands of employees they had let go during the sector’s recession.
The US news outweighed comments by Khalid Al Falih, Saudi Arabia’s oil minister, who said last week that he would support an extension of the output deal that has kept North Sea Brent prices above $50 per barrel since last December. Brent futures were up 22 cents at $52.18/barrel late afternoon Gulf time yesterday.
Oil ministers, including the UAE’s Suhail Al Mazrouei and Kuwait’s Essam Al Marzooq, had stressed in Abu Dhabi last week that the US recovery – where output has risen by about 500,000 barrels per day to above 9 million bpd since last September – was more than balanced by rising demand and cuts elsewhere. Signs of a US oil production resurgence is being given weight because it is an especially sensitive period.
“The market looks very delicate at the moment and it really seems to be grasping for direction,” said Ed Bell, commodities research analyst at Emirates NBD. “The supportive factors for crude, such as an extension of the Opec deal or involuntary output restrictions, are being matched by the market’s view of how the US will react.”
The involuntary output restrictions include the countries within Opec that were exempted because of their special circumstances.
Nigeria remains 400,000 bpd below last year’s export level, at less than 1.7 million bpd, as it struggles to recover from sabotage by militants. Venezuela’s political crisis has resulted in an inability to pay for tankers, restricting its oil exports.
In Canada, up to 70,000 bpd output has been delayed because of extended maintenance at an important facility, while Brazil is also late adding nearly 250,000 bpd of output because drilling ships have not arrived on time, according to JCB Energy consultants in Vienna.
One consequence of these competing storylines is the difference between Brent and WTI. The two benchmarks were about evenly priced when the output deal was struck at the end of last year, but Brent now stands around $2.20 per barrel above WTI.
The volatility will probably continue, fed by uncertainty on a number of fronts.
Indeed, Mr Bell says, “the crude output Opec producers are keeping offline is hanging over the market. It hasn’t disappeared or been removed permanently and eventually a guessing game of what price will encourage those barrels to creep back into the market will limit the topside for crude prices.”
amcauley@thenational.ae
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