Brent trading at $49 a barrel on concerns over slowing demand, rising US crude output and stronger dollar
Oil prices have fallen two weeks ahead of the impending Opec meeting, where the group is expected to announce a continuation of production cuts.
The benchmark price had been trading largely in a range of $50-$55 a barrel since the end of November 2016, when Opec agreed to cut output in the first six months of 2017, but on 4 May had hit a six-month low of $46.64 a barrel.
On 9 May, Brent crude prices fell 49 cents to $48.85 a barrel due to concerns over slowing demand, rising US crude output and a stronger US dollar.
The US-based Energy Information Administration (EIA) raised its forecast for American crude production, predicting average output of 9.3 million barrels a day (b/d) in 2017 and 10 million b/d in 2018. The EIA also lowered its forecast for the average Brent price in 2017 to $52.6 a barrel. In February, it had anticipated prices averaging $54.54 a barrel.
Weaker sentiment on oil prices has come in spite of the wide expectation that Opec will continue to put a cap on production in the second half of 2017, reducing the total supplied to the global market.
The 13-member exporting group is set to meet on 25 May to announce its plan for the rest of the year. Opec and some non-Opec countries, including Russia, had agreed to reduce output by 1.8 million b/d in the first six months of 2017.
With the anticipated Opec cut doing little to shore up the market, it appears the group has little power to boost prices for the remainder of the year.
Saudi oil minister Khalid al-Falih said on 8 May that the next agreement on Opec cuts could be extended for longer than six months.
Based on the consultations I have had with participating members, I am rather confident the agreement will be extended into the second half of the year and possibly beyond, he was quoted by Bloomberg as saying at a conference in Malaysia.
Rising US production boosted by $50-plus prices in early 2017 has added further supply to the market since the 30 November Opec agreement. Meanwhile, according to analysts, global demand growth has been disappointing.
Global oil demand growth has been underwhelming, partly explaining the sell-off in crude prices and refining margins, said analysts from the US Bank of America Merrill Lynch in a 10 May note.
Global oil demand should recover somewhat soon as some negative factors, such as the demonetisation in India or the sharp recessions in Brazil and Russia, are receding.
An agreement at the Opec meeting to prolong the cuts will add some positive sentiment to the oil market, but there appears little impetus for prices to climb above the $55 highs seen earlier in the year.
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