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Rystad Energy: Oil rises on supply cuts extension potential

Published by , Deputy Editor
Oilfield Technology,

Oil prices rose this morning on anticipation for the coming OPEC+ meeting, which is rumoured to discuss maintaining high-level production cuts after June, Rystad Energy reports.

Rystad Energy’s daily market comment from Head of Oil Markets Bjornar Tonhaugen:

"Enthusiasm over rumours that OPEC+ countries will soon discuss extending the current generous 9.7 million bpd output curbs after June helped prices gain further, with both WTI and Brent trading at the upper 30s.
"Albeit not yet confirmed, the group may bring forward the planned ordinary OPEC+ meeting to Thursday 4 June, from the scheduled 9-10 June. OPEC+ cuts are clearly working with solid help from recovering crude oil demand, especially in Asia. An extension of the current cut levels will definitely be a further boost for the market. Not only will the market rebalance, but stock builds of oil will also feel some relief. Prices rise on this prospect and are set for higher levels if the cuts are indeed extended.
"If the current OPEC+ cuts are extended into July, the draws in July-August may be 3-4 million bpd larger than in June, which could rev oil prices further up. Furthermore, oil sentiment is further supported by the US oil rig counts, which dropped to a mere 204 units last week, bringing the cumulative decline in the number of operating rigs to 420 (67%) since the middle of March. During the previous downturn in 2015-16, horizontal oil drilling bottomed in May 2016 at about 250 rigs, nearly 50 rigs higher than the activity level seen right now. We see more evidence that the horizontal oil rig count is approaching the bottom of this down cycle. However, what will determine the short term trajectory for US oil production is how quickly operators bring back parts of our estimated 1.65 million bpd of shut-in well production.
"Bottom-line is that the market is on a recovery path. If OPEC+ extends the high-level oil production cuts, that recovery will speed up and prices won’t lag behind."

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