collected by :Jack Alex
Modest hopes dashed: Brent crude oil priceWould you like to get live, interactive coverage of major, market-moving economic news?
It has taken crude prices above $50/barrel, but they don’t look comfortable there, especially as US shale-oil production rises.
An earlier draft of the statement had said that the committee reported a “high level of conformity” and “recommends” a six-month extension.
In any case the lack of an immediate extension to the output cut has weighed on oil prices as a new week gets under way in Asia.
International benchmark Brent crude got up to $51.07 as the report was released but has since slipped back to $50.78.
Recent Oil Price Pullback Is Opportunity To Position For 2nd Leg Of Oil Price Rally
Investors can’t be blamed for feeling disheartened by the news, especially given that January was the first month of the OPEC oil production cut deal.
So while demand tends to be much lower in the first quarter of the year compared with the previous quarter, production also tends to be lower.
If the OPEC deal will be renewed in June, we can expect a significant oil price rally in the second half of this year.
As we can see from the chart, US oil production increased from 5.4 mb/d in 2009, to a decades high of 9.4 mb/d in 2015.
Some of the main factors that led to this increase include the Iraqi oil production revival, as well as the more recent Iranian return to normal production in the aftermath of sanctions being lifted.
Will The Oil Price Slide Lead To A Credit Crunch For U.S. Drillers?
This time around, analysts expect reductions in credit lines should oil prices drop below $45 until creditworthiness reviews are over, according to Bloomberg.
Still, decreases are not expected to be as drastic as they were at the height of the oil price slump.
These assessments are closely connected to the price of oil, given the fact that the value of the companies’ oil and gas reserves serve as the basis for their creditworthiness assumptions.
The price of oil will surely be the major component in banks’ reviews of borrowing bases.
The recent drop in the price of oil may prompt banks to be more cautious in their assessments, but still, things look brighter for oil firms than they did in March last year when oil prices were consistently below $40 a barrel.