Major Oil Producers Lose Appetite for Cuts

Two of the world’s leading oil-producing countries have shown little willingness to prolong beyond this month a deal to curb the market’s supply of crude. That is one of the topics Rigzone’s panel of informed observers reference in this week’s recap of hits and misses on the oil market. Keep reading for details.

Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?

Andrew Goldstein, President, Atlas Commodities LLC: Crude oil struggled to continue its rally as it approached its 200-day moving average, a key technical resistance level. Additionally, as many projected, Saudi Arabia and Russia have revealed little appetite to extend the current OPEC cuts, which are in place through June.

Tom McNulty, Houston-based Principal and Energy Practice leader with Valuescope, Inc.: The Baker Hughes Rig Count continued to fall as expected; it’s down nearly 700 rigs versus this time last year, when West Texas Intermediate (WTI) was trading in the mid-$50s. That is a 70-percent drop.

Rigzone: What were some market surprises?

Goldstein: American crude oil and gasoline inventories rose unexpectedly last week. That, in conjunction with an uneven worldwide demand recovery and a huge supply of oil stored both on land and at sea, have driven prices down back below $36 (as of Thursday’s close).

McNulty: WTI is at $36.80 now (shortly after 10 a.m. Central time on Friday), which is down about 35 percent vs. last summer. With July 2021 trading at $38.88, the curve is essentially flat. The only market surprise I see is that the U.S. Energy Information Administration inventory number was up more than expected.

Mark Le Dain, vice president of strategy with the oil and gas data firm Validere: OPEC now focusing on shorter targets and extension with the cuts is a great way for them to target backwardation. This curve structure would make hedging less effective for both shale and Mexico that run significant programs, pull financials into the market given the roll yield and reduce tanker costs by eliminating storage arbs. All of this is useful to long-term OPEC market share.

To contact the author, email mveazey@rigzone.com.