Oil & Gas
Oil prices: OPEC urged to focus on boosting refining not more cuts
Against the backdrop of OPEC meeting last week to explore further cuts to members’ production, analysts have urged the oil cartel to focus on boosting refining demand and margins around the world as they hold more promise for oil rally rather than cuts.
After OPEC’s meeting in Vienna, last Friday to review an oil supply cap fixed for members and some non-members, on Friday, international benchmark Brent crude oil was trading within $2 of its 2017 high of $58.37.
Analysts are watching refineries around the world for signs that the oil price rally can continue and help drain crude inventories that have been high for the past three years. “There are times like these when refiners will push the envelope, especially when the envelope is getting stuffed with cash,” John Kilduff, Again Capital founding partner, an investment firm told CNBC.
Crude stockpiles have fallen in the OECD, a group of mostly developed nations, throughout the second quarter, OPEC states in its September bulletin. OECD inventories stood at 195 million barrels above the five-year average in July, down from about 340 million barrels above that level at the start of 2017.
OPEC noted in the report that the cuts were instrumental in driving down stocks in the bulletin. Last year, OPEC and some non –members agreed to cut 1.8 million barrels off the market through March. However, OPEC members have not fully complied with the cuts yet, more of these cuts are expected as part of the recommendation of the group’s meeting last Friday.
“Over the first half of the year, the collective efforts of participating producer nations have pulled close to 350 [million barrels] in aggregate from global supply,” OPEC said in its report for September. “It is easy to imagine what the market would have looked like had these 24 countries not taken such collective action.”
While the cartel and its allies continue to keep a lid on production, their crude exports remain robust, with the exception of Saudi Arabia, analysts say.
Tom Kloza, global head of energy analysis at Oil Price Information Service is of the view too that refining represents the future of higher crude prices. Kloza said that high demand for diesel and home heating fuel means refineries are willing to pay more for crude oil.
While recent hurricanes have wiped out demand for gasoline in recent weeks, demand for diesel is likely to remain strong as construction crews fire up heavy machinery to rebuild storm-ravaged areas, said Kloza.
“Those high margins translate into less resistance for crude oil prices that are a few dollars higher,” he said.
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