U.S. Oil Export Surge Means OPEC's Output Cuts May Be Doomed

March 11, 2018

  • ING sees U.S. eating into producer group’s Asian market share
  • Dutch bank forecasts Brent oil at $57/bbl in second half 2018

(See Bloomberg site for video: OPEC's Control of the Oil Market Is Running on Fumes)

Oil risks sliding back under $60 a barrel as a surge in U.S. shipments to Asia threatens to undermine a deal between OPEC and its allies, according to ING Groep NV.

While the producer group complied with a pledge to curb output and ease a glut in 2017, U.S. flows that are gaining a bigger slice of the prized Asian market may prompt some nations to boost supplies, said Warren Patterson, a commodities strategist at the Dutch bank. The resulting fallout could drag down crude prices after a rally of more than 40 percent since June, he said.

“The longer the deal goes on, it’s going to start falling apart,” Patterson said in an interview in Singapore, referring to an output-cut agreement between the Organization of Petroleum Exporting Countries and other producers including Russia. “They continue to give market share away to the U.S.”

U.S. Crude Heads to Asia

Asian refiners are increasing their U.S. oil purchases.

Brent crude, the benchmark for more than half the world’s oil, traded at $65.07 a barrel at 10:11 a.m. in London on Monday, compared with about $45 in June. ING forecasts Brent at $57 in the second half of 2018. Prices were at more than $115 in mid-2014, before a global glut sparked the biggest crash in a generation. West Texas Intermediate, the U.S. marker, is currently near $62 a barrel.

Crude’s rebound since last year is encouraging American drillers to pump even as they make efforts to be disciplined on spending, Patterson said. “We need to see prices in the short-term trade below $60 to reduce that incentive for U.S. producers,” he said.

As American output continues to expand, more exports will sail to Asia, the traditional bastion of Middle East producers. In February, even Saudi Arabia’s state oil company considered participating in these flows via a U.S. unit...

Read entire article at Bloomberg.com.


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