Crude Oil Prices Stay Low on OPEC Deal

Published at 09:30AM - 06/10/16

Despite the impeding agreement by the Organisation of Petroleum Countries (OPEC) to decrease crude production, analysts are maintaining their expectations low regarding the evolution of crude oil prices.

The market is sceptical that the Organisation will formalise the plan to cut output in its next meeting in November, or that the proposed action will have a significant impact amid the current supply glut.

The evolution of shale oil production in the US is another key factor, with analysts saying that production in the US could rise again, especially since it can be profitable even with oil in the current price range.

Crude Oil Prices Stay Low on OPEC Deal

According to a survey disclosed by The Wall Street Journal, Brent crude is expected to average $56 per barrel, while WTI is expected to average $54 per barrel, next year.

In the meantime, the American Petroleum Association recently issued a report estimating a 7.6 million barrel draw on US oil stockpiles last week, which could be good news for OPEC.

Experts are now waiting a confirmation from the Energy Information Administration (EIA) and if the reduction is confirmed, they expect oil prices to rise in the US.

Nevertheless, oil stocks are still approximately 10% higher than they were the same time last year and refined products reserves are up by almost 5%.

Supply Glut Undermines Oil Rise

Essentially, analysts believe the market is overstocked and find it unlikely that demand will grow any time soon, with the International Energy Agency (IEA) estimating oil prices to remain low well into next year.

It is nonetheless a significant event that OPEC members have agreed to reduce production by up to 700,000 barrels per day (bpd) by the end of this year.

As well as this, the news had a short-lived effect, with crude suffering a slight rise after the deal was announced, and Brent settling above $50 for the first time since August.

The OPEC deal should be finalised next month in Vienna. At the moment, one of the major issues is how members will determine how much each will cut, especially in the case of Iran.