In the current gloomy market sentiment, OPEC would need to deepen the production cuts by 1 million barrels per day (bpd) if the cartel wants to move up the price of oil, Emma Richards, senior industry analyst at Fitch Solutions, told CNBC on Thursday.
The oil market has recently become “incredibly sensitive to any kind of bearish indicator,” Richards said, adding that it doesn’t take a lot to see a big downward movement and it’s really difficult to get oil prices to move upwards.
Oil prices plunged on Wednesday as new worrying signals about the global and U.S. economy flashed. Early on Thursday, both benchmarks continued the downward move, with WTI Crude down 1.21 percent at $54.56 at 10:15 a.m. EDT, and Brent Crude down 2.07 percent at $58.25.
At the start of last week, the U.S.-China trade war and a looming currency war rattled oil markets, while two days later Saudi Arabia rushed to contain the price slide by saying that despite what it sees as healthy demand in all regions, it continues to keep its exports below the 7-million-bpd mark and will do so at least through September.
Also last week, reports emerged that Saudi Arabia had approached other members of OPEC to discuss possible steps they can take to arrest a slide in oil prices that have brought them to the lowest in seven months.
Asked whether the Saudis would really push for some kind of action, Richards told CNBC that it’s possible, and that at the moment, OPEC’s de facto leader is just trying to talk up the market. Related: US Gas Prices Slump Despite Soaring Demand
Given where oil prices are now and given where demand is headed, it’s very likely that OPEC+ will extend the production cut deal at least until the end of 2020, according to Richards.
It’s possible that the producer group will “put deeper cuts in place, but they have already done so much and I think to actually move the price they’d have to do something pretty significant, another million barrels per day perhaps, whether or not they can build consensus for that is another question,” the analyst told CNBC.
Fitch has recently downgraded its Brent forecast to $67 for 2019 and since it put out that forecast, oil prices have lost another $5-6 a barrel. The balance of risk is certainly skewed to the downside, Richards told CNBC.
By Tsvetana Paraskova for Oilprice.com
ADVERTISEMENT
More Top Reads From Oilprice.com:
- Saudi Aramco’s First Ever Disclosure Shows $47 Billion Profit
- Oil Markets Face Nightmare Scenario
- Will We See An Oil Supply Glut In 2020?
As long as the trade war continues, the glut will continue to rise. Therefore, adding more cuts to OPEC+ already-implemented cuts will be dealing with the symptoms rather than the cause of the disease. They will hardly make a dent on the glut until the US and China reach a settlement. This doesn’t seem close.
The reason is that President Trump knows he has lost the trade war with China and is finding it hugely difficult to admit defeat. He has backed himself into a corner, with only one option open to him now, namely to call off his trade war and negotiate an end to the war on China’s terms. This is too bitter a pill to swallow. That is why he is prevaricating about ending the trade war.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London