Wednesday 17, May 2017 by William Mullally

Oil – falling stockpiles and OPEC’s oil talk lift Brent above 50

Oil rose back above $50 on news about falling stockpiles and Saudi Arabia reducing supplies to Asia. We see oil prices trading between $45 and $50 per barrel. The persistent supply glut and reviving shale boom question the Middle East supply deal’s effectiveness, writes Norbert Rücker, Head Macro & Commodity Research, Julius Baer

Oil prices gained yesterday on falling US stockpiles and Saudi statements that supplies to Asia will be cut by June. Brent rose back above $50 per barrel. The official US weekly oil market report showed an unexpected drop in oil storage, largely due to declining imports. However, it is far-fetched to make a link between the data and Middle East’s supply cuts.

The weekly imports are a volatile and less reliable data set, which so far shows no softness since the start of the year. US crude oil inventories have decreased ahead of the seasonal trends as of late but it remains unclear if this is related to imports or to the unusually high refinery activity in part induced by high product exports. The Middle East and Russia are poised to roll over the output cuts, mulling even an extension beyond 2017.

The ‘oil talk’ is set to heat up ahead of the meeting of the Organisation of Petroleum Exporting Countries (OPEC) at the end of May, and support sentiment and create market noise temporarily. The fundamental impact should remain benign, not least as compliance remains at risk of slipping.

The past months reveal the new oil market realities, where the responsiveness and com-petitiveness of the US shale industry prevent prices from rising sustainably beyond $50 per barrel. Growing Libyan and Nigerian exports could be another source of headwinds for oil. We stick to our neutral view and see prices trading between $45 and $50 per barrel.



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