The “whatever it takes” pledge was made by Saudi Energy Minister Khalid al Falih at a meeting in Kuala Lumpur in early May, echoing a promise by European central banker Mario Draghi five years ago during his successful fight to defend the euro.
“Now we’re in the process of the market playing chicken with OPEC and non-OPEC”, said John Kilduff, founding partner at energy hedge fund Again Capital. “Somebody at OPEC has to cut further but no one is willing”. With the glut persisting, the outlook for oil prices has been dampened. An seasonally unusual gasoline build last week was seen as bearish in the market. It took OPEC and its allies nearly a year to fashion last year’s agreement, with failed talks in Doha in April, a hard fought compromise in Algiers in September, and months of shuttle diplomacy before sealing the deal in November. On Tuesday, a technical committee of OPEC and non-OPEC members is said to have discussed the increasing production in Libya and Nigeria.
Zangeneh cautioned that cutting production “has always been a hard task in OPEC”.
Moreover, despite pledges from the likes of Opec and Russian Federation to cut out by 1.8 million barrels a day until next March, production is rising in the USA as well as some Opec countries exempt from the agreement. Prices lost $1.20, or 2.6 percent, to $44.82 on Wednesday, the lowest close since November 14.
“The future might be bright for oil prices but the present is not”, said Tamas Varga at London-based broker PVM. Global benchmark Brent was 0.83 percent higher at US$45.19.
The ongoing decline in prices appears to have stemmed from investors discounting evidence of robust compliance by OPEC and non-OPEC producers with a deal to curtail a global supply overhang. US shale is returning at full force.
Crude prices have been under pressure in recent weeks as concerns over a steady increase in US production added to fears over a glut in the market. Berentsen said that unless OPEC deepened cuts or there was a large, unexpected production stoppage, prices will remain low.
The recent setback for crude and commodity prices as well as some equity markets is partly down to doubts over US President Donald Trump’s promised multi-trillion dollar stimulus programme, which had raised hopes of boosting inflation and growth.
However, the rapid increase in United States shale production in recent months has confirmed that these companies were able to shed costs in order to survive the crisis.
OPEC supplies jumped in May as output recovered in Libya and Nigeria, both exempt from the production reduction agreement.
“We definitely have seen USA production take a lot of players by surprise”, Delaney said. However, we need to warn investors that the USA companies are close to the risk zone and might be compelled to halt production growth if oil slides below $40.
“They (US producers) have added more than 900,000 barrels to their daily output in the last few months, which was bigger than OPEC forecasts”, Zanganeh said on the sidelines of a Cabinet meeting in Tehran on Wednesday, Shana reported.