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Skepticism over OPEC ability to lift price

|By Arabian Post Staff|The Brent crude oil price has fallen to a post-October 2017 low, while WTI now trades at August 2017 levels, according to UBS Energy Review. Economic growth concerns, along with systematic selling – momentum trading and the clearing of futures positions ahead of the end of the year – are robably fueling this latest price decline. That the OPEC+ production cuts only come into force in January is not helping sentiment at the oment either.

While trade war fears continue to unsettle the market, Chinese crude imports exceeded 10mbpd for the first time in November and could remain above that mark this month as well. The latest available data suggests that oil demand by China – the second-largest consumer after the US – is still strong.

US oil prices are trading into the cost curve of US shale producers, with WTI midland prices (prices in the Permian, the largest US shale basin) dropping below USD 40/bbl. Such low prices only make sense if market participants believe that OPEC+ has lost control of its market-balancing function and US shale producers need to take it over.

If prices remain at these levels for a sustained period, North American producers are likely to begin curbing investment and production growth. That said, the Saudis, the backbone of OPEC+, are already leading by example and have already scaled back their exports this month. We expect improving oil inventory dynamics  primarily in the US – to support oil prices over the coming months.

Also published on Medium.