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OPEC engages non-OPEC members, consumers to stabilise oil market

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*as oil prices leap to $49 per barrel

By Prince Okafor

THE Organisation of the Petroleum Exporting Countries (OPEC) has opened discussions with non-OPEC members as well as consumers to achieve stability in the global oil market.

The Minister of State, Petroleum Resources, Dr. Ibe Kachikwu, disclosed in an interview with Bloomberg Television that OPEC has started to engage non-OPEC members, including the United States to stabilise the market.

He also said that it would be impossible for OPEC to achieve stability in the world market without the cooperation of other stakeholders.

OPEC and non-OPEC nations had agreed on a six-month cut of 1.8 million barrels per day (bpd) from January 1, 2017.

A research analyst at Forex Times, FXTM, Lukman Otunuga said that, OPEC remains somewhat confidently optimistic that production cuts agreed with non-members may elevate oil prices and ultimately lead to a recovery of the saturated oil markets.

Persistent oversupply

“With the cartel initially agreeing to cut production by 1.2 million barrels per day back in November for the first half of 2017, speculation heightened that the oil markets were stabilizing and that persistent oversupply woes would come to an end,’’ he stated.

However, he noted: “While compliance continues to be respected by most OPEC members, the resurgence of U.S shale has somewhat counteracted OPEC’s efforts. Much attention will be directed towards the OPEC meeting in May, where the cartel decides whether or not to extend the deal.’’

“An extension of this by another six months could provide oil prices a welcome boost in the short term, as the oversupply concerns recede. If U.S shale exploits this opportunity to pump oil incessantly, then oil prices may remain depressed in the medium to longer term,” he added. Otunuga also said that with oversupply woes still a dominant theme when dealing with oil, the outlook remains tilted to the downside in the longer term.

According to him, the fact that there are still no punishments or fines in place for producers who go over the recommended production quota does create a seed of doubt over the effectiveness of the deal.

He disclosed that OPEC has made a valiant effort to stabilize the oil markets by cutting production; the resurgence of U.S shale has simply sabotaged the cartel’s efforts.

Otunuga indicated that from a technical standpoint on the monthly timeframe, WTI Crude remains in a downtrend with current appreciation in prices seen as a technical bounce.

He said that long term bears remain in control under $60, with weakness below $45 opening a path towards $40 and potentially even lower.

Reacting to the news of talks with non-OPEC members, the Chief Executive Officer, Matrix Energy, Mr. John Erinle, said: “Nothing ventured, nothing gained. Before venturing to engage the external producers OPEC must have done some homework and is encouraged to go ahead.

“The US may be a tough nut to crack but you don’t completely rule out a reasonable streak emanating from that quarter. Stability is gradually returning to the industry. It is still expected that equilibrium will be established around + $ 60/bbl. Success in the envisaged engagements will also enhance stabilization at the expected price range.”

Erinle further stated that, “The OPEC agreement last year was a master stroke in stabilizing the market to a very good extent. We have returned to a reasonable price regime and it is unlikely that it will go up much higher except there are some unforeseen perturbations in the market. All stakeholders will do well however to accept the reality that the days of $100/bbl are gone.”

However, oil prices that dropped by about five per cent last week have risen in excess of $49 per barrel on Monday, this week as a result the plan of the Organisation of Petroleum Exporting Countries, OPEC to sustain output cut.

A survey of the London and other markets showed that the price of OPEC basket rose from $46.22 to $47.44 per barrel yesterday.

“The price of OPEC basket of thirteen crudes stood at $47.44 a barrel, compared with $48.34 the previous day, according to OPEC Secretariat calculations.”

“The OPEC Reference Basket of Crudes (ORB) is made up of the following: Saharan Blend (Algeria), Girassol (Angola), Oriente (Ecuador), Rabi Light (Gabon), Iran Heavy (Islamic Republic of Iran), Basra Light (Iraq), Kuwait Export (Kuwait), Es Sider (Libya), Bonny Light (Nigeria), Qatar Marine (Qatar), Arab Light (Saudi Arabia), Murban (UAE) and Merey (Venezuela),”







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