Oil market overview

At the weekend, a joint committee of energy ministers from OPEC and non-OPEC oil producing countries pledged to consider extending output deal cut for additional 6 months.

Venezuela’s Oil Minister Nelson Martinez supported the idea of deal extension. Iraq, Algeria, and Angola also said that they would back a prolongation of the deal.  Mohammed Al Rumhy, energy minister of non-OPEC producer Oman, said that a further extension of the supply reducing deal looks expedient. Kuwait was the first nation calling for the extension of output cut agreement.  

The biggest OPEC supplier Saudi Arabia has indicated that it won’t be against the prolongation of the agreement if global crude oil stockpiles remain above their five-year average.

There are several factors that undermined the effectiveness of the November supply reduction deals: low seasonal demand, refinery maintenance, rising non-OPEC supply (the recent estimate of compliance rate of the non-OPEC members reached 64%). A further extension of the deal could be a rational decision once the impact of aforementioned factors is eliminated.

Russia Energy Minister Alexander Novak said that the country is not ready to support a possible extension of oil supply cuts in the second half of the year, even if the majority of oil suppliers acknowledge their contribution to the reduction of global oil stockpiles. He also said that Russia won’t make any pledges until April as it needs more time to assess the oil market, inventories and US drilling activity and non-OPEC countries’ production.  This was a massive drag for oil prices.

An additional factor that led to the quotes’ downfall was Baker Hughes rig count data released last Friday. It revealed that the number of active US rigs drilling for oil increased by 21. It was the tenth weekly increase in a row.

Brent oil futures slumped to $50.60 in the opening hours of Monday’s session.