Oil Prices Stabilize after OPEC Moves to Favor Extension of Production Cuts

Oil remained stable after the Organization of Petroleum Exporting Countries (OPEC) indicated that it would discuss extending the oil production agreements to 2019. This came on the back of the commodity losing about 1.7 percent on Monday. As most of the middle-east countries’ budget largely depends on the pricing of oil, they are not ready to take an opposite view after seeing the success in the last more than one-year period. However, this is not good news to India since it will increase the oil bill with the potentials to lift essential prices ahead of the elections.

Crude Inventories

Another key factor that aided oil to remain stable is the crude inventories. Bloomberg’s survey of analysts pointed out that America’s crude inventories dropped last week, Bloomberg reported. Significantly, this came on the back of inventories holding below the average for the five-year period in the preceding month. A few years back, there were more worries that oil price would not stage a recovery citing an expected increase in production. However, the OPEC-initiated production cut yielded the expected results. In the process, these countries have to shed market share.

Last week, oil climbed to hit a three-year high following the increased concerns about the possible supply disruptions in the Middle East region due to geopolitical risks. This included the tensions in Syria and between Saudi Arabia and Yemen, which got the backing of rebels from Iran. In any case, the record production in the United States continues to remain a big worry for OPEC, as well as, its allies.

Mizuho Research Institute’s senior economist, Jun Inoue thinks that OPEC and its allies would do everything to limit supplies that will meet the demand though crude inventories could fall. He believes that the falling inventories should help oil prices remain stable. In the morning in London, West Texas Intermediate gained three cents to $66.25 a barrel for May delivery following the gain of 53 cents. However, the contract fell to $66.22 on Monday representing a drop of $1.17.

Significantly, the total volume traded increased about 15 percent from the 100-day average levels. As far as the June futures for Brent, it added two cents to $71.44 percent. The benchmark crude for international trade enjoyed a premium of $5.21 to June WTI.

Existing Plans

OPEC and allied producers have seen the gains of production cuts in the last 15-month period. Currently, their agreement to keep production limits was extended until the end of the current year. However, they would meet in June to take stock of the situation, according to Kuwait’s Oil Minister, Baksheet Al-Rashidi. Earlier, Russia indicated that the alliance could last ‘indefinitely.’

Meanwhile, the crude inventories have probably dropped 600,000 barrels last week in the United States. The official data is expected to be announced on Wednesday. Also, the inventories dropped below the five-year period average for the first time in March after 2014. Aside from that, stocks in Oklahoma and Cushing has probably witnessed 650,000 barrels drop last week following an increase in the preceding five weeks until April 6.

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