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Crude prices stand around $50 on eve of next OPEC’s meeting

26 May 2016 23:49 (UTC+04:00)
Crude prices stand around $50 on eve of next OPEC’s meeting

By Fatma Babayeva

Less than a week left to the OPEC’s next meeting which will take place in Vienne on June 2.

Oil prices stand at around $50 per barrel on the eve of the upcoming meeting. July contracts of WTI crude oil were traded at $49.88 in New York Mercantile exchange –NYMEX on May 26, which is $0.32 or 0.65 percent higher compared to the previous day.

In the meantime, July contracts of Brent Crude stood at $50.14 by experiencing an increase by $0.40 or 0.8 percent on the same day. The cost of Azeri Light amounted to $50.36 per barrel ($0.53 increase) on May 25.

Only OPEC’s oil basket price was $44.02 on May 24, according to the official website of the organization.

The root reason for the slump in oil prices since mid-2014 was the oil glut existing in the global market caused by the new oil sources coming online.

Nevertheless, the recovery in the global oil market is not permanent and caused by temporary disruptions in oil output of some oil producing countries like Canada, Venezuela and Nigeria. Once their oil production is restored, the market is expected to again going from oil oversupply.

But, recent upward trend observed in global oil prices caused some finance institutions raise their forecasts.

Recently, analysts of the U.S. JP Morgan raised their forecast on 2016 oil prices by $4.3 a barrel to $45.3 a barrel for Brent and $44.66 a barrel for WTI.

2017 forecasts of the Bank have been raised to $55 a barrel for both WTI and Brent crude, which is an increase of $3 a barrel from the previous forecasts.

In JP Morgan’s report, analysts noted that supply outages have outpaced market expectations. Now, second quarter of 2016 seems to register a draw in commercial inventories against expectations of a build of +0.8 million barrels per day last month.

The markets are now assessed as being tighter for the second half of 2016 than previously expected, underpinning the price forecast increase to $50 a barrel on Brent and WTI, said the Bank.

The big picture supply adjustment that bank’s experts anticipated to take hold in during the second half of 2016 has arrived one quarter earlier.

In the short term, prices are expected to remain volatile and very much at the whim of supply developments, the report read.

The highest average price for both Brent and WTI in the course of 2016 and 2017 is projected by JP Morgan's analysts during the last quarter of the next year - at $60 a barrel.

In the meantime, specialists of the British Capital Economics consulting company forecasted Brent and WTI crude price to amount $45 per barrel by the end of the current year.

According to the projections of the U.S. Citigroup, Brent crude prices will average $50 per barrel in the third quarter of 2016 and $65 by the end of 2017.

Last meeting of OPEC members with non-OPEC countries held in Doha on April 17 ended without an accord on freezing oil output at the level of January of 2016 as Saudis put forward a condition for Iran’s commitment to the deal. Meanwhile, Iran and Libya did not even attend the gathering . The freezing of oil output aims to boost prices by alleviating the oversupplied market.

Also, analysts at the JP Morgan bank believe that the upcoming OPEC meeting will have an unexpected result.

"Market expectations for a meaningful agreement from OPEC's June meeting are likely low following April's debacle in Doha, when eight weeks of diplomatic negotiations failed to yield an agreement to cap output at current levels," the bank's analysts noted.

"Yet even though Russia seems unlikely to attend, the dynamic within OPEC may yet produce a surprise result, even if it is simply to re-engage with non-OPEC producers to restart talks", said the report.

The analysts of the bank also believe that with Iran's production back above its pre-sanctions level of 3.6 million barrels per day and closing in on 4 million barrels per day,it is not wholly unlikely that they could agree to limit output at 4 million barrels per day in conjunction with similar pledges from other producers.

In the analysts' view, the drawdown in Saudi inventories would indicate a degree of reticence on the part of Saudi Arabia to lift the output from the 10.2 million barrels per day level without some catalyst such as more material outages or rapidly appreciating prices that undermine its medium-term objectives of forcing the bulk of the adjustment in supply onto high cost producers.

Overall, JP Morgan forecasts that the OPEC oil production will amount 33 million barrels per day in 2016 and 33.2 million barrels per day in 2017.

Earlier, Iranian officials said that the country may consider freezing its oil output once they reach the pre-sanctions level.

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Fatma Babayeva is AzerNews’ staff journalist, follow her on Twitter: @Fatma_Babayeva

Follow us on Twitter @AzerNewsAz

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