Saudi Arabia comes to rescue of oil markets, but sentiment remains fragile

last week’s comments from Saudi Arabia’s Energy and Industry Minister Khalid Al Falih on the extension of the six-month output cut may continue to sooth frayed nerves, especially among traders who are still reeling from falling oil prices, but analysts say positive sentiment still remains fragile.

On Friday, Brent crude traded at $51.76 per barrel, after falling more than 10 per cent from the recent high of $57 per barrel. The drop was triggered by rising US oil inventories and shale output.

Mr Ole Hansen, head of commodity strategy at Saxo Bank, said that “The soothing comments from Saudi Arabia and the first, small drop in US oil inventories this year helped stop crude oil’s aggressive price correction.”

Mr Al Falih said a deal to cut oil output by the Organisation of the Petroleum Exporting Countries (Opec) could be extended if inventories remain above average.

In November, Opec and some non-Opec producers agreed to cut production from January 1 to reduce record stocks of global crude oil, but the deal has been dampened by data showing persistently rising US stockpiles.

Mr Hansen said that “But the sentiment remains fragile at this stage, with Opec potentially being forced to extend current production cuts beyond six months to achieve its goal of balancing the market.”

He said that “An extension of the deal would require Opec and non-Opec producers to agree. There have been signs of frustration from Saudi Arabia related to slow compliance from Russia and Iraq. The question remains how a deal would survive for a full 12 months given the signs of unease after just 2-1/2 months.”

Analysts feel that shale production need to monitored carefully.

Mr Vaqar Zuberi, head of hedge funds at Mirabaud Asset Management said that “The current prices are sufficient to support increased activity. However, reliable models of increased rig count and corresponding production predict a modest increase and is, likely to be offset by an extension of production discipline from the Opec producers.”

US drillers added oil rigs for a ninth week in a row, extending a recovery that is expected to boost shale production by the most in six-months in April.

Source : GULF NEWS

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