A leading oil economist has warned that the extension to OPEC output cuts “may not be enough”.
The Organisation of Petroleum Exporting Countries met this week in Vienna to agree to extend an initial six month production curb by a further nine months, into next year.
The move to cut daily supply of 1.8 million barrels or oil equivalent, first agreed at the end of last year, will now last until March 2018.
But some market analysts and investors fear simply extending the same level of cuts is not enough – and that OPEC should have raised the bar in terms of how much is cut from daily output.
And some traders’ fears have been compounded by the increased output from US shale – capable of making a profit at lower margins than traditional plays – as well as Donald Trump’s influence in the White House.
The US President proposed earlier this week selling off up to half of the US strategic oil reserve.
Alex Kemp, professor of petroleum economics at the University of Aberdeen, said that only time would tell how these factors played into global oil prices.
He said: “The market is currently under downwards stress because of US shale where production has come up significantly.
“Stocks of petroleum are still very high – higher than necessary.
“From the point of view of OPEC, if they want to stabilise or increase the price they would have to extend of deepen the cuts.
“This is better than nothing.
“But in the current situation sustaining these cuts may not be enough to get the price up.”
“There’s a doubt whether it will have a big effect.”
Kemp added: “If they had not come up with a cut then the price would have fallen further.”
Market traders will now be keenly watching what happens next, according to the professor.
Both Brent Crude and West Texas Intermdiary were showing marginal signs of recovery this morning, having dipped Thursday evening following OPEC’s decision not to deepen the cuts.
Professor Kemp said: “The traders will be looking at what is happening to global stock but particularly in the US.
“They will also be looking at shale oil production and what the US Government does about selling of its strategic petroleum reserves. This is a significant resource.”
Professor Kemp said modelling for the North Sea continued to show trends he identified earlier this year – with an increased chance of more projects coming on-stream with $60 oil rather than $50.
At 10:15am GMT, WTI was trading at $48.93, up 0.06%. Brent was up 0.17% at $51.55.