Oil futures found a breather after the major oil kingpins announced their support on the output freeze last Monday. Saudi and Arabia finally agreed to cut their respective output in the midst of a flooded oil market. Oil glut supply seems an endless issue that has haunted the market since the start of the year. Now, that there’s a probability that the oversupply may be addressed, how big is the chance that the oil price will soar?
On Monday, oil futures recovered from the slump the previous week. Brent crude oil advanced for almost 0.30 percent, while NYMEX added more than 2 percent. The upsurge of oil price did not last the following day, Brent lost 4 cents while NYMEX went down 8 cents in the morning session. Is the production cut outlook not enough?
The problem lies in the recent output figures by these oil producers. Despite the intention to freeze output, the implementation is still far from reality. Words which are not put into action will merely remain words. The market is fairly not convinced that this will materialize in the near future. It took them too long to finally cut the output and most probably it will take them too long to implement this.
The oil market has to deal with the previous glut which may last until the end of the year. The current supply remains more than what the market demands.
Asia’s Major Participation
Following the declaration of support by Saudi Arabia, more countries in Asia is set to cut their output. China, India, Vietnam, Indonesia and Malaysia may cut around 255,000 barrels per day and may be push around 309,000 bpd by 2017, based on estimates.
For the record, China accounts for more than 9 percent of oil in the world, making it the biggest oil producer in Asia. Energy companies such as China Petroleum and Chemical Corporation, China National Petroleum Corporation and China National Offshore Oil Corporation are just some of the leading oil firms in the mainland China which produced approximately 1.4 billion barrels on an annual basis.
India produced around 978,000 bpd, making it the 20th biggest oil producer globally. Malaysia accounts for over 600,000 bpd, while Indonesia can produce approximately 900,000 bpd. For the last decades, Vietnam’s oil output stands between 300,000 to 400,000 bpd. If these producers cut their supply, will it lead to an immediate market rebalancing?
Conclusion
The oil market needs a more definite plan from these producers to figure out the impact of output freeze in the long term. For instance, a concrete number of drop from their production should be announced as soon as possible. A production decline could have a domino effect from the producers to the consumers. The prices of the commodities are at stake as well, affecting even the financial market through the commodity currencies. These could be the reasons why the oil market kept on declining. No definite figures and clear plan. Therefore, for the following sessions, expect a slide of oil futures.