USOil futures are up 1.3% at $50.39, as the May Contract closes, trading above $50 for the first time since late April. Oil markets are continuing to discount an OPEC-led extension in the prevailing output, which is expected to be agreed upon at the cartel’s meeting next Thursday May 25. Crude prices are up by 4.4% w/w, yet remain down by just over 7% on the year-to-date, despite the 1.8 mln barrel-per-day output reduction of most of the major oil producing nations. Political pressures in Venezuela, Libya, Iran and Iraq continue to haunt the cartel. Russia, the major non-OPEC part of the deal is expected to be represented on the periphery of the meetings.
Earlier this week the Russian and Saudi Arabian energy ministers met and agreed to do “whatever it takes” to curb global production and address the supply side of the equation. The first step along this rocky road was to extend the cuts agreed last November by nine months to March 2018. Libya and Nigeria (whose Oil Minister Mr Barkido is the current OPEC Secretary General) are excluded from the deal because of their grave domestic economic situations, have actually increased production significantly since the 29th November agreement, causing feathers to be ruffled with their fellow members.
The Elephants in the cartels’ Room are the US shale producers, whose rig count seems to climb every week and they are outside of any deal. The demand side of the equation continues to falter as global growth stutters along, however, signs are emerging of growth in Europe, parts of SE Asia and China (another major global producer and major investor in its own shale gas production). Oil remains a key geopolitical asset but the significance of OPEC as the dominant controller of supply is all but over. Forty four years after it shook the world with a tripling of crude oil prices and seized the initiative in global energy supplies, OPEC is in the full throes of a mid-life crisis.
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