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Crude oil prices await OPEC decision

Author: Arpit Chandna/Wednesday, May 22, 2019/Categories: Exclusive

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Crude oil prices await OPEC decision

Crude oil prices have been on a riot since the beginning of this year and is awaiting a decision by the Organisation of the Petroleum Exporting Countries (OPEC) on its production cut agreement to reflect an upshot.

Crude oil markets are expecting a slowdown in global demand on the back of slower global economic development due to increasing trade tensions between the US and China and a geopolitical rift with Iran. China is one of the largest energy consumers in the world and therefore an important influence on prices.

Though major crude oil supplier OPEC believes that in 2019 demand for its crude will average around 30.58 million barrels per day (bpd), up by 280,000 from the previous forecast, the IEA has revised and cut down global demand outlook for the year by 90,000 bpd, averaging a total of 1.3 million bpd. The major reasons for the slowdown are due to divergence in consumption patterns in OECD (Organization for Economic Cooperation and Development) countries and Non-OECD countries. Demand in Non-OECD countries like China, India and Russia surged by 930,000 bpd on a year-on-year basis, while demand in OECD countries, comprising mostly members of the EU, fell by 3,00,000 bpd. The US witnessed a rise in consumption of crude oil.

Meanwhile, global supply shrunk by 300,000 bpd led by Iran, Azerbaijan, Kazakhstan and Canada. After the effective US sanctions on Iran, crude output from the country dropped by 130,000 bpd making it a total of 2.61 million bpd in April. The following expiration of sanction waivers has created a supply gap for other OPEC members to fill. The OPEC held the 14th JMMC meeting on May 19 and observed the adherence to the production cut quotas. The compliance level among OPEC members in April stood at 168 per cent which was 120 per cent since January 2019.

The 15th JMMC meeting is scheduled to be held in June when the market will be waiting the decision regarding the extension of production cut accord. The market is mostly factoring in and building expectations that the OPEC will continue with supply cuts till the end of year to bring the global markets into balance which would only be possible if the production cuts is extended till the end of 2019.    

The author is a fundamental research analyst at Karvy Comtrade Limited


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