OPEC extension sends oil prices soaring
As expected, OPEC agreed to extend its production cut deal through to the end of 2018. The initial reaction from oil prices was muted, but once fears of a selloff had passed, both WTI and Brent moved dramatically upwards weekend to $58.07 and $63.54 respectively.
OPEC followed through on its promise, extending the production cuts through the end of 2018, bringing relief to an oil market that had grown jittery in recent days. Oil prices traded in a relatively narrow range after the meeting and appeared muted. But once concerns over a selloff calmed, oil prices rallied once again on Friday morning.
The deal will run from January through to December, and the exact volumes of the production cuts will be the same as this year. The OPEC/non-OPEC coalition said that they would monitor market conditions and would remain “agile,” ready to respond if the fundamentals deviate significantly from expectations. They will revisit the agreement at the next official meeting in June 2018, but they assume the cuts will last through the end of the year.
According to Oil price Intel Russian officials pressed for details on an exit strategy heading into the meeting, but the group offered no information – Saudi oil minister Khalid al-Falih said it would be “premature” to do so. One notable change is that Libya and Nigeria agreed to cap their production levels at their 2017 average, which doesn’t necessarily curtail supply but will prevent any “surprise,” as witnessed this year. The Russian and Saudi oil ministers played up their unity and boasted about their strong relationship.
According to Goldman Sachs says long-dated oil futures are more volatile than is justified. The investment bank said that assurances from OPEC that the group will respond to market conditions should assuage concerns in the market about an unexpected rush of supply or, conversely, excessive tightening. The responsiveness of OPEC “leads us to reiterate our view that long-dated implied volatility remains too rich,” Goldman analysts wrote in the note published on Thursday.
while OPEC was meeting behind closed doors, the EIA published data for September, showing a dramatic jump in output. The U.S. produced 9.48 million barrels per day in September, an increase of 290,000 bpd from a month earlier. Aside from the size of the increase, the data was significant because it seemed to put to rest the notion that the agency was overestimating supply. For several months, the weekly data diverged from the monthly data, raising questions about how accurate the EIA’s estimates were. But the recent data suggests that U.S. shale production is indeed growing robustly.
It is also instructive to note that Shale hedging soared in the third quarter of this year. New hedging contracts in the third quarter encompassed 897,000 bpd of annualized production, according to Wood Mackenzie survey of 33 companies. That is 147 percent increase from the second quarter, and a sign that shale drillers rushed to lock in hedges after WTI rose above $50 per barrel. “Producers that are able to lock in prices above previous expectations may feel more comfortable with increasing activity,” Andy McConn, a Wood Mackenzie research analyst, told Bloomberg. “Others may leave budgets unchanged and promote higher cash-flow guidance to an investment community anxious about profits.”
Olusola Bello with agency report