Oil Prices Edge Higher as Speculation Increases on Producer Intervention

Oil prices have risen as it is being increasingly assumed that producers will step in to support prices in a market that has been curtailed by oversupply on a global scale, Brent Crude oil futures have peaked at just over $47.6 per barrel this morning GMT, having began the day on $47.1.

Prices have been boosted since the end of last week as Saudi Arabia energy minister, Khalid al-Falih, said that his country would take action that was necessary to assist the crude oil market, comments which many believed means that the world’s most influential oil producer could in theory support a international production cap.

The ANZ Bank said: “Oil posted another gain as speculation of potential production freezes by OPEC picked up pace. Saudi Arabia signaled that it is prepared to discuss stabilizing the markets at informal OPEC discussions next month,”

The 14 member OPEC bloc will meet in Algeria between September 26th to the 28th , which could prompt a production cap agreement in order to boost prices, Brent Futures dipped as low as $28 in January.

Oil brokers PVM said that it has been a mistake to interpret a fall in daily oil surplus will result in higher oil prices, if OPEC continue to produce at their current production run rate of around 34 million barrels of oil per day, there will be a second half of the year surplus approaching 650,000 barrels per day.

The second half of this year was widely forecast to see the consolidation of oil prices, above $50 bbl, providing the platform for a move above $60 bbl by the end of the year.

This is smaller than the first half year surplus but still a serious excess by any standards PVM opined, .according to OPEC’s latest forecast for the 2017 OPEC call, production next year at 34 million barrels per day will throw up an average annual surplus of 1 million barrels per day.

The oil brokers are unsure whether the OPEC meeting next month will be a credible one or not, but suggest that OPEC has nothing to lose about talking about an informal discussion on a restraint on production levels.

They also believe that a gesture to Venezuela, Nigeria and Algeria should be made and agree to a discussion, if the result of this unsettles the market, and it adds just an extra $2 on a barrel of oil leading up to the meeting, then OPEC revenues will increase by £3.8 billion.

Overall, the upside is a lot more if the prospect of a meeting creates enough speculative caution to keep fingers off the sell trigger, a very good return for agreeing to a no-commitment get-together

Also, those who believe that one day OPEC will of necessity put their disagreements aside, can point to the Saudi’s saying earlier this year that Iran must participate in any freeze on production, and the Iranians saying they would only consider that when they have returned to their pre-sanctions production level of 4 to 4.2 million barrels per day.