Goldman stays oil bull, undaunted by Saudi-Russia crude plan

30 May, 2018, 18:36 | Author: Kathy Ellis
  • Oil prices fall as supply from top three producers set to rise

US and global benchmark oil prices diverged on Tuesday, with concerns about a potential rise in oil supply pulling West Texas Intermediate crude down for a fifth straight session.

Crude production in the US has increased by 25% since the middle of 2016 as producers attempt to capitalize on the increase in prices. Venezuela is now producing just 1.4 million barrels a day, down from 3 million barrels a day just a few years ago, while UBS AG Wealth Management forecasts a drop of about half a million barrels day from Iran.

The Schork Report Publisher Stephen Schork on the outlook for oil prices. Thus it is in the direct interest of the Saudis to maintain oil at a high price.

At the moment the barrel of WTI is losing 1.32% at $66.53 facing the next down barrier at $65.73 (low May 28) seconded by $65.56 (low Apr.17) and finally $65.16 (100-day sma).

To be certain of this, Saudi Arabia keeps advocating for the reduction of oil production from the Organisation of Petroleum Exporting Countries (OPEC), which for the first time, have been really effective through various agreements signed among the OPEC member states.

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"Structurally there shouldn't be enough pressure on the market to take us back into that very high-priced world", said Andrew Slaughter, an energy expert and executive director at consulting firm Deloitte Services LP.

The Organization of the Petroleum Exporting Countries and non-OPEC producers led by Russian Federation have had a pact to curb output by about 1.8 million barrels per day since January 2017, driving down inventories and pushing up oil prices. Probably not, although India is among Saudi Arabia's largest clients, and its demand for oil is growing at the fastest pace in the world.

Again, there is a geopolitical angle, with China, the world's biggest crude importer, under political pressure by President Trump pressure to buy more from the United States in order to lower the USA trade deficit with China. Although US oil exports hit a record high of 2.6mn bpd in the middle of May, there is concern that the US port infrastructure has insufficient capacity to support the increasing supply.

West Texas Intermediate crude oil fell significantly during the trading session on Friday, as the USA dollar continues to strengthen, and of course there is talk now that perhaps the production cuts coming out of OPEC's recent meetings may be coming to an end.

Today, current price levels averaging around $60 to $70 per barrel allow shale oil producers to reinvest in drilling wells and add capacity with free cash flow rather than debt, according to Slaughter. Subtropical Storm Alberto lost strength as it came ashore near Laguna Beach in Florida, bringing heavy rains that threaten the U.S. South with economic losses of $1 billion.

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