Iraqi deputy oil minister, Fayadh al-Nema, said yesterday that OPEC would work to stabilise oil markets, crude prices and supplies at its next meeting.
“OPEC and non-OPEC producers will work together to restore balance to oil prices and supplies to make sure prices stay stable,” he told journalists at an oil exploration conference in Baghdad.
Meanwhile, oil prices yesterday moved up regaining some of the previous day’s more than 6 per cent fall, supported by a report of an unexpected drop in U.S. commercial crude inventories as well as record Indian crude imports.
However, investors remained on edge, with the International Energy Agency (IEA) warning of unprecedented uncertainty in oil markets due to a difficult economic environment and political risk.
International Brent crude oil futures were at $63.42 per barrel, up 89 cents, or 1.4 per cent from their last close, while the U.S. West Texas Intermediate (WTI) crude futures, were up 70 cents, or 1.3 per cent, at $54.13 a barrel.
Yesterday’s gains came after a report by the American Petroleum Institute, API, on Tuesday that U.S. commercial crude oil inventories had fallen unexpectedly by 1.5 million barrels, to 439.2 million barrels, in the week to November 16.
Record crude imports by India of almost 5 million barrels per day (bpd) also supported prices, traders said. Yet Wednesday’s bounce was small in the context of general market weakness, which saw crude tumble by more than 6 percent the previous session amid a selloff in global stock markets.
“The global economy is still going through a very difficult time and is very fragile,” IEA chief Fatih Birol told Reuters on Tuesday. With output surging and the demand outlook deteriorating, the Organization of the Petroleum Exporting Countries (OPEC) is pushing for a supply cut of between one million and 1.4 million bpd in a bid to prevent a repeat of the 2014 glut, when a production overhang resulted in a price crash.
Despite an expectation of OPEC-led cuts, Brent and WTI prices have slumped by 28 and 30 per cent respectively since early October, and the entire structure of the forward price curve has changed.
The Brent forward curve was in steep backwardation in October, implying a tight market with prices for spot delivery higher than those for later dispatch. This makes it unattractive to store oil.
Since then, however, the curve has moved into oversupply as higher prices further out make it attractive to store oil for later sale. “Investors are becoming increasingly concerned that any potential production cuts by OPEC will be insufficient to cover the surplus in the market,” ANZ bank said yesterday.
“The list of reasons for the decline are pretty specific … too much supply and a risk of slowing demand growth,” said James Mick, Energy Portfolio Manager with U.S. investment firm Tortoise. “Part of the supply issue has been surging U.S. production,” he added.
U.S. crude oil production has jumped by almost a quarter this year, to a record 11.7 million bpd largely thanks to a surge in shale output. Meanwhile, oil markets are entering an unprecedented period of uncertainty due to geopolitcal instability, the head of the International Energy Agency, (IEA) said on Tuesday.