OPEC courting more oil producers to restore stability; may benefit India

Marcus Newton
October 12, 2017

Saudi Arabia said it pumped 9.97 million barrels per day in September, up about 22,000 barrels per day from August, but below its OPEC target.

Rising supply from the USA and from other producers outside of the deal, as well as recovery of production in exempt OPEC members Libya and Nigeria, have been offsetting much of the OPEC/non-OPEC production cuts. The cuts have helped revive crude, which had fallen to half its 2014 peak.

When the futures market shows near-dated oil contracts trading above those further out, a pricing structure known as backwardation emerges, which indicates that traders believe supply is becoming restricted and encourages anyone storing up physical oil to release their stocks.

The 14-country producer group said its oil output in September, as assessed by secondary sources, came in below the demand forecast, even though output climbed slightly.

Oil prices have firmed in 2017, but they have not risen as much as some analysts had forecast.

Read: What happens if OPEC maintains current levels of production?

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Opec now sees the global economy growing by 3.6 per cent this year and by 3.5 per cent in 2018, an increase by a tenth of a per centage point.

The main global crude oil futures contract, Brent, was trading at around $56.83 in late morning London trading.

"A rise above that level would encourage USA oil producers to expand their drilling activities, otherwise the lower prices could lead to a reduction" in investments, it added.

Saudi Arabia and Russian Federation helped secure a deal between the Organization of the Petroleum Exporting Countries and 10 rival producers to cut output by about 1.8 million barrels per day (bpd) until the end of March 2018 in an effort to reduce a glut.

If OPEC does decide to extend the agreement, oil prices should at the very least, hold firm, and could easily build on recent gains through the remainder of the years. OPEC plans to meet on November 30 to assess the market and its production policy. The main USA contract, WTI, was at $51.30.

Other reports by MaliBehiribAe

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