The oil market is losing its faith in OPEC’s attempt to lower the huge supply overhang amidst falling oil prices. The road ahead to a more balanced market is expected to be bumpy, stated Nordea Bank in a research report. In the past day, oil prices have dropped; however, they have been trending lower since the beginning of May.
U.S. crude production, both onshore and offshore has increased for 11 weeks straight to 9.29 mb/d, showed EIA figures. This was the longest period with increasing oil production since 2012 when the shale boom really hit a high.
U.S. shale producers have increased production much faster and with greater volumes than expected as production costs were cut sharply in the low-price era and technology has continued to enhance efficiency of production, noted Nordea Bank.
U.S. shale producers have given a headache to OPEC before their meeting on 25 May. The increase in production threatens the attempts by the cartel and eleven other countries to underpin prices by lowering their production as agreed on 30 November 2016.
OPEC is being compelled to extend the agreement of production cut into the second half of this year. Otherwise, it faces a risk of a decline in oil prices to a low of USD 40/barrel again as the market might lose faith in OPEC’s capability to control the market.
“We expect that OPEC will agree to cut oil production again in two weeks’ time and oil prices will move back above USD 50/barrel”, added Nordea Bank.
However, any miracle cure is unlikely. Brent oil is expected to come in at USD 56/barrel in the second quarter and at USD 57/barrel until the next OPEC meeting, according to Nordea Bank.
