Oil prices improve as crude market continues to tighten

Why Are Oil Prices Not Popping Out Of 1 Year Long Range

Crude oil in floating storage is declining, showing that the market is rebalancing, OPEC Secretary-General Mohammad Barkindo said.

OPEC, Russia and other non-member producers are cutting output by about 1.8 million barrels per day (bpd) until next March to get rid of a price-sapping supply glut.

The main worldwide crude oil futures contract, Brent, was trading at around $56.83 in late morning London trading.

OPEC said the world would need 33.06 million barrels per day (bpd) of its crude next year, up 230,000 bpd from its previous forecast. The group is increasingly confident that the market is rebalancing fast, helped by the cutback as well as by stronger-than-expected growth in global demand.

Barkindo stressed, however, that the oil market is a global one.

OPEC and its allies want to bring stocks down to the five-year average and are discussing extending their supply restraint.

Oil prices rose for the third day on Wednesday as OPEC forecast higher demand for 2018 and heightened tensions in Kurdistan supported prices. Growth in US shale three years ago contributed to the global excess OPEC's cut is now targeting. Oil prices have crashed to Dollars 50s now, from the high of USD 147 per barrel in 2008.

Barkindo said the effort in part helped the energy sector emerge from the "most vicious of all oil cycles", with oil prices tanking below $30 per barrel a year ago on oversupply concerns.

The price expectation, given on page 45 of the 96-page report, is an assumption, not a forecast, OPEC sources said. But analysts at JPMorgan said this was less of an issue, saying "concerns that OPEC compliance would fade into the fourth quarter now appear unfounded". Remember, higher crude oil prices have a bullish impact on oil exploration and production companies (RYE) (VDE) like Devon Energy (DVN), Whiting Petroleum (WLL), and Newfield Exploration (NFX). Saudi Arabia and Russian Federation, he said, are leading the initiative to bring in more producers.

Haworth said the market and OPEC are "hoping United States producers slow down production and make further progress on inventory cuts". Should Opec keep pumping at similar levels to September, the market could move into a deficit next year, the report indicates.

OPEC's reluctance to cut output was also seen as a key reason behind the fall.

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