OPEC Compliance With Oil Cuts At Lowest In 6 Months

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OPEC’s compliance with production cuts fell in June to its lowest levels in six months as several members pumped much more oil than allowed by their supply deal, thus delaying market rebalancing, the International Energy Agency said on Thursday.

Global oil supply rose in June as compliance with an OPEC-led deal to freeze production showed signs that it was stalling.

OPEC’s compliance with cuts dropped to 78% last month from 95% in May as higher-than-allowed output from Algeria, Ecuador, Gabon, Iraq, the UAE and Venezuela balanced out strong compliance from Saudi Arabia, Kuwait, Qatar and Angola.

“Each month something seems to come along to raise doubts about the pace of the rebalancing process. This month, there are two problems: a strong recovery in oil production from Libya and Nigeria and a lower rate of compliance by OPEC with its own output agreement,” the Paris-based IEA said.

The supply of oil increased by 720,000 barrels a day in June across the world and by 340,000 barrels a day in OPEC countries. This was caused by higher production even in those countries subject to an OPEC-led deal to cut production. Saudi Arabia has increased its flows, the IEA said, as well as Libya and Nigeria who are not part of the production freeze.

“Higher output from members bound by the production pact knocked compliance to 78 percent in June, the lowest rate during the first six months of the agreement,” the IEA said in the report.

The agency also said that “compliance with agreed non-OPEC output curbs improved to 82 percent in June, overtaking compliance from OPEC for the first time since the cut took effect in January.”

The Organization of the Petroleum Exporting Countries and several non-OPEC producers, including Russia, have agreed to cut production by around 1.8 million barrels per day until March 2018 to ease a global crude glut spurred by booming U.S. output. But there are doubts mounting over the sustainability of the deal. Kazakhstan, for example, has said it wants a gradual exit from the output cap deal.

OPEC members Libya and Nigeria were exempted from the cuts due to years of unrest that have sapped their output. The two countries have managed to increase their combined production by more than 700,000 bpd in recent months, the IEA said.

“For fellow OPEC members, who agreed to reduce production by 1.2 million bpd, to see their cut effectively diluted by nearly two-thirds must be very frustrating, especially as their pact has, hitherto, been well observed by historical standards,” the IEA said.

The cuts have stabilized oil at around $45-50 per barrel, but prices have come under renewed pressure in recent weeks due to growing U.S. output and little evidence of global stocks falling from record highs above 3 billion barrels.

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Oil Prices Rise after Saudi & Russia’s OPEC Agreement

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Oil prices surges on Monday following Saudi Arabian and Russian energy ministers’ decision of extending the Organization of the Petroleum Exporting Countries’ (OPEC) output deal for an additional nine months.

Global benchmark Brent crude futures lifted 3.1 percent to $52 a barrel the highest level in two weeks while US marker crude West Texas Intermediate (WTI) edged up 3.2 percent to $49.

The gains will present some relief subsequent to what has been a dull few weeks for a lot of commodities in the course of US President Donald Trump’s effort to get his infrastructure plan started and tightening credit in China.

Energy ministers Khalid Al-Falih (Saudi) and Alexander Novak (Russia) met on Monday in Beijing and talked about the oil output policy.

Russia is the world’s largest oil manufacturer while Saudi Arabia is the major exporter.

Both ministers said in a shared statement that they have agreed that supply cuts needs to carry on to 2018, an act towards keeping the OPEC-led deal so as to hold up prices in place longer than the initially decided optional six-month extension.

The Saudi Arabian minister also said that there has been a noticeable drop to the inventories but they are not where they want to be in meeting the five-year average.

For this reason, they have come to the decision that the deal has to be extended.

The ministers suggested that next round of cuts should be on the same conditions like the previous agreement where OPEC, Russia and other producers settled to cut production by 1.8 million barrels per day in the first half of 2017 with a possible six-month extension.

Khalid-Al-Falih told the reports that OPEC countries and non-OPEC countries taking part in the agreement on cutting oil outputs has accomplished a complete consent on extending the contract.

He added that he thinks that the verdicts will be positive in Vienna and that they bring together a full agreement of the group.

Based on the joint statement of Saudi Arabia and Russia, they have agreed to discuss with the countries-parties in the deal and other producers ahead of May 24 so as to achieve a complete consent on the nine- month extension of the declaration on cooperation.

Both countries are planning to suggest the nine-month extension at the meeting which will take place on May 25.

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Oil Prices Recover after Earlier Decline

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Oil prices has rebounded on Friday after falling earlier which  caused distress in markets resulting in traders and investors to seek refuge in safe-haven bonds, triggering the yen and gold to haul up a record-breaking high for the world stock market.

As of 14:07 GMT, gold futures for the June contract is currently 0.02 percent down to $1,228 while spot exchange rate for Japanese yen fell 0.01 percent against the US dollar to $0.008883.

Traders had to seek out for shelter overnight as US crude oil WTI futures for June delivery fell 0.3 percent to $45.38 a barrel as of 13:28 GMT, off the six-month low of $43.77 target but it is still under constant worry  in the course of continuous global supply glut concerns.

Crude has recovered from its previous decline gaining 0.5 percent to $45 a barrel.

Brent oil futures for the July contract was up 0.8 percent to $48 a barrel after hitting a six-month low of $46.65 the previous session.

Hong Kong’s PetroChina and CNNOOC also closed their session with a 2 percent loss to HK$5.26 and 0.7 percent low to HK$8.85 respectively.

Oil was not the only commodity to encounter declines this week. Chinese iron ore edged down almost 7 percent in Shanghai overnight after falling 8 percent on Thursday.

Mining giant Rio Tinto (RIO) closed 2 percent down to AU$57.150 hitting a six-month low, while Glencore PLC (GLEN) is up almost 2 percent to £282.70 and copper miner Antofagasta rose 1 percent to £760 on Friday.

Some of the world’s most sensitive commodity currencies went downside with the Australian dollar losing 0.1 percent to $0.7399 the same goes for the Russian ruble also 0.1 percent low to $0.01711. The Canadian dollar broke the trend gaining 0.1 percent to $0.7284.

Crude prices has been under pressure after the US Energy Information Administration said in its weekly report that crude oil inventories fell by 930,000 barrels in the week ended April 28 which was a much smaller take than expected.

Back in November last year, the Organization of the Petroleum Exporting Countries or OPEC together with other manufacturers including Russia came to an agreement to cut production by about 1.8 million barrels per day between January and June yet the output cut has had little effect on inventory levels.

A final decision on whether or not to extend the agreement beyond June will be discussed by the oil union on May 25.

Other commodities were also up on Friday with silver futures increasing 0.1 percent to $16.334 and copper steady at 0.02 percent to $2.511.

Meanwhile, the Indonesian government is asking $2 billion in reimbursement from Thailand’s state oil company and its Australian division due to an oil spill in the Timor Sea nearly eight years ago.

The lawsuit was said to be registered last Wednesday at the Central Jakarta District Court in an attempt to seek justice for the oil spill at the Mondara oil field that started on August 21, 2009.

The demand for compensation includes $1.7 billion for environmental damage and $330 million for restoration work.

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Oil Surges after hitting One-month Low

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Oil prices have recovered on Friday after falling to a one-month low a day earlier encouraging investors to purchase at economical levels, prior to the Organization of the Petroleum Exporting Countries (OPEC) meeting in May where manufacturers could extend the production cuts.

Growth was also supported by a drop in the dollar and indications that Russia, a non-OPEC member, was completely agreeing with the output limits decided among major producers last year by cutting 300,000 barrels per day.

Saudi Arabia’s energy minister was pleased about the news saying Russia’s involvement was good and that total non-OPEC compliance was 85 percent.

The US Dollar Index (DXM7) was down 0.09 percent to $98.93 on Friday.

U.S. West Texas Intermediate (WTI) crude was up 0.9 percent to $49.43 a barrel while Brent oil futures were also 0.9 percent high to $52.31 per barrel.

Gasoline RBOB futures also edged up 0.6 percent to 1.5727 on Friday.

However, oil prices were still heading off for its second straight weekly and monthly losses for two reasons. First, is the Thursday’s crude prices fall following the restart of two main Libyan oilfields the Sharara and El Feel due to disputes of an armed group that had blocked the pipelines there.  Second, are concerns over the OPEC output cut said to have been unsuccessful to completely constrict the saturated market.

WTI crude is set for small weekly loss about 8 percent below its peak in April. Brent is already almost down around 8.5 percent from this month’s peak and is still on track for second although small week of declines.

OPEC and other manufacturers including Russia agreed at the start to cut production by almost 1.8 million barrels per day, this was only during the first half of the year. However, OPEC gave in to demands to extend the cuts in order to cover the whole 2017 so as to take care of brimming supplies in other places.

The organization stated that the output cut will be extended bumping into the reality of the restart of two Libyan oilfields and persisting expansion of US shale oil.

Meanwhile, Russia has called for its state-owned companies to pay out half of their earnings in dividends this year in an effort made by the government to drive corporations such as Gazprom, Roseneft, Aeroflot and Alrosa to block openings in the federal budget.

Shares in the state-run companies went up on Friday after the announcement.

Gas group Gazprom’s shares rose 2 percent to 136.21 in Moscow as of 12:50 GMT. The company said on Thursday that it plans to pay out 7.89 rubles ($0.14) per share in dividends less than would be approved by the 50 percent demand.

Russia’s biggest oil company and largest oil producer by output Rosneft has decided to give 35 percent of its 2016 profits in dividends.

Moscow’s index MICEX (MCX) boosted 0.3 percent to 2,019 on Friday.

Last February, Russia’s deputy economy minister Olga Dergunova said that raising dividend costs could bring as much as 110 billion rubles ($1.9 billion) of additional budget profits.

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Extension to OPEC Output Deal Leads to Oil Price Hike

Oil prices rose on Wednesday for its seventh session over the growing anticipation of an extension to OPEC’s agreement of output cuts.

Global benchmark Brent oil futures edged up by 0.6 percent to $56.58 a barrel at 10:59 GMT while US crude oil (WTI) rose 0.5 percent to $53.68.

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The increase in oil prices was due to the reports on the subject of Saudi Arabia telling other producers from the Organization of the Petroleum Exporting Countries (OPEC) to extend the production cut that will expire in June for another six months when they meet in Vienna on May 23, 2017. This is done for the purpose of speeding up the rebalance in the market.

During the first half of 2017 OPEC and other producers, includingRussia, have agreed to cut production by around 1.8 million barrels per day (bpd) so as to control over supply. Saudi Arabia decided to reduce more than it authorized which has helped to make up for a less strict agreement by other participants in the deal.

Turns out Saudi Arabia’s cut appeared to be one step ahead of the estimate and gave oil a boost. The country is also protecting its most important clients in Asia from the cuts, continuing to supply them with all contractual amounts.

Moreover, OPEC has raised its forecast for oil demand to 1.27 million barrels per day a major change of 10,000 barrels per day. OPEC’s monthly oil report on Wednesday come as OPEC countries cut oil production in March more than expected. In accordance with  the deal, it averaged 104 percent based on OPEC’s output figures.

The cut in production came due to irregular oil prices. The OPEC Reference Basket (OBR) went down 5.7 percent in March to 50.32 bpd. Although the OBR gained a rapid increase in prices for both the quarter and the year, indicating that the OPEC production cuts which began in 2016 was a success.

Also, growth within OECD developed nations is expected at 1.9 percent within the US and the euro area seeing no changes on previous forecasts. China’s forecast growth in demand was revised from 6.2 percent to 6.3 percent

OPEC stated that policy issues and monetary policy decision will be the main aspects in ensuring this growth, but, as will maintaining stability in commodity prices.

Meanwhile, the US production and inventories are increasing. According to the government’s Energy Information Administration (EIA) on Tuesday, the country’s crude output will rise from 9.2 million bpd this year to 9.9 million bpd in 2018 with demand expectedto increase by 340,000 bpd next year which will leave rising quantities of US oil for export or storage.

Crude oil is expected to get nearly $59 per barrel and if the oil deals are extended, then almost $67 per barrel.

Official US production and inventory data will be released later on Wednesday by EIA.

It is said that the next two years could mark the largest increase in oil and gas projects production in history along with a new shale oil rise that could alone grow 1 million bpd year-on-year could create an excessive supply in 2018 and 2019.

In other energy products, natural gas (NGK7) futures for May rose 0.1 percent to $3.15 while RBOB gas futures for the same month fell 0.06 percent to 1.76 on Wednesday, 12:38 GMT.

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OPEC’s Output Curb and its Global Impact

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Last November 2016, the Organization of Petroleum Exporting Countries (OPEC) together with 14 member countries came to an agreement to reduce oil production in an attempt to raise prices. Oil prices have been down by more than half since mid-2014 due to global oversupply and booming US shale production.

Five months later, from 1.3 million barrels per day (bpd) now cut down to almost 1.8 million bpd it is still debatable whether OPEC’s solution to manage the worldwide glut that is happening will help.To some, it became an advantage. For others, it became a disadvantage.

Top traders saw this as an opportunity and are confident that the OPEC cuts will work and they bet that by selling their stakes in storage tank businesses that benefited from oversupply. They also expect OPEC to extend output cuts into the second half of 2017 which can help pull down global inventories.

Since mid-2014, the situation has been in a contago, in which, when inventories are abundant the oil price for future deliveries tend to be higher than prompt delivery. Sometimes the prompt price reaches more than $1 less than a barrel for delivery a month later.

Meanwhile, with OPEC’S effort to control oil output Asian countries such as China has been reaching out to other suppliers for crude including Africa and US. Current

The cut of production gave way for other nations to acquire a better footing in the developing Asian market such as those operating in West Africa.

Angola and Nigeria are all set to send China 1.48 million bpd of crude oil in April. The West African crude is expected to reach 2.4 million bpd this month for its Asian imports.

Sales of Nigerian grades also went up this month as trust in the reliability of the country’s flows has improved.

Moreover, according to the International Energy Agency (IEA), China may also become the world’s top oil buyer by the end of the year with 32 cargoes of mainly Angolan grades, which will help transport large amount of Angolan crude to Asia to about 1.31 million bpd this month.

Unfortunately, Iran and Tehran have both been struggling to keep up as Iran has sold all of its stock from its floating storage while Tehran is under pressure to keep exports from increasing as it struggles with the production limit.

Iran has sold its last supply of oil in the past two weeks. The oil was said to be condensate, which was a light grade of crude. With all of its stock sold, Iran lost its fundamental resource for maintaining exports.

Back in June 2016, Iran’s output went from 2.9 million bpd to 3.6 million bpd. The country fought hard with its OPEC colleagues to be excluded from the production cuts that came into effect on January 1st which will last until June. OPEC gave Iran a small increase to make up for years of separation, but produced less in the past three months.

Last month, Tehran was ready to manufacture 3.8 million bpd if OPEC agreed to extend the production curb in the second half of 2016.

Meanwhile, oil prices went up on Thursday. This is its fourth gain after recovering losses caused by high US crude inventories.

Brent oil futures edged up on Thursday by 19 cents from $54.56 to $54.75 bpd as of 13:04 GMT, while crude oil WTI futures increase by 22 cents from $51.28 to $51.50 a barrel.

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Oil Prices Decline as U.S. Rig Count Stoke Oversupply Concerns

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On Monday, oil futures plunged as a higher U.S. rig count showed increasing  shale production and fueled worries regarding global oversupply, while a stronger greenback also pressured prices.

International benchmark Brent futures glided 15 cents, or 0.3%, to $53.38 a barrel by 0440 GMT. The March deal  closed the prior session down 13 cents at $52.83 a barrel.

U.S. West Texas Intermediate crude futures decline  8 cents, or 0.2%, to $50.52 a barrel after settling 25 cents higher in the prior session.

Both agreements have posted their worst quarterly loss since late 2015 in the March quarter. U.S. futures decline approximately 6% from the prior quarter, while Brent lost 7% as increasing  inventory levels outpaced production cuts by OPEC and non-OPEC members.

Crude prices staged a three-day rally the previous week during  expectations members of the Organization of the Petroleum Exporting Countries (OPEC) and non-members like Russia would extend output cuts beyond June.

However,  prices decline on Friday after energy services firm Baker Hughes said the U.S. rig count surge by 10 to 662 last week, making the 1st quarter the strongest for oil rig additions since mid-2011.

“We could be getting close to the end of the rally. Today’s pause may be significant in terms of market direction – we’ll see what happens in Europe and the U.S. later today,” said Ric Spooner, chief market analyst at Sydney’s CMC Markets.

“We’ve had a pretty significant rally in the past week, driven by Libya’s production not doing as well due to disruptions, good utilization rates by U.S. refiners and talk of OPEC and non-OPEC members extending production cuts for another six months,” Spooner said.

“Now the market may have priced all those factors in and investors are waiting for additional indicators to give oil prices direction.”

That could come later on Monday when Europe and the U.S. release purchasing managers’ index (PMI) data.

PMI data from China on Saturday indicated the country’s factories expanded for a ninth straight month in March, but at a softer pace as new export orders slowed.

“The China PMI figures were pretty positive – they provide background support for oil prices,” Spooner said.

On Monday, the U.S. dollar index increased against a basket of currencies. A stronger greenback makes greenback-denominated commodities, including oil more expensive for holders of other currencies.

Iraq plans to surge its oil production capacity to 5 million barrels per day before the end of the year,however,  Baghdad has assured Organization of the Petroleum Exporting Countries (OPEC) it will fully conform with the pact to reduce oil supply, Oil Minister Jabar al-Luaibi and OPEC Secretary General Mohammed Barkindo stated on Sunday.

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