Muscat: Oman’s crude oil price plunged to its lowest level in five months, as rising oil supply from the United States (US) continued to cast doubts on the ability of Organisation of Petroleum Exporting Countries (OPEC) to protect prices.
Oman crude oil futures crashed to $47.97 on Friday, more than 13 per cent below its 2017 peak, after reports on rising US crude production and slower than expected decline in inventories, wiping out price gains made by OPEC supply cut agreement. Brent crude futures fell to $48.38 per barrel, while the West Texas Intermediate dropped to $46.51 per barrel.
Data from Baker Hughes showed US rig count rose last week by seven, to 877, which represents more than 100 per cent year on year rise in rig count. Weakening demand in China and small decline in Organisation of Economic Co-operation and Development (OECD) inventories has also contributed to drop in prices.
“The bullish impact of OPEC production cuts has begun to erode with two main factors starting in March, a slower and smaller decline in OECD oil inventories than the market had anticipated, and expectations of a surge in US production. As the OECD data typically comes with a time lag, I expect the market to remain sharply focussed on the weekly US crude and product inventory, as well as oil consumption figures. Our base-case scenario is for WTI and Brent to continue trading in the high-$40s and low-$50s range, respectively, in the next few weeks, unless we see a major and sustained drawdown in US crude and gasoline inventories, which could push prices back up close to the mid-50s,” Vandana Hari, CEO and Founder of Vanda Insights, a Singapore-based boutique provider of energy markets research and analysis. Although OPEC production cuts have strengthened the benchmark Oman crude against Brent and WTI grades, it has come under pressure due to the dwindling demand from Chinese independent refiners.
“Oman crude has come under relatively greater pressure in recent days because of a decline in purchases from the Chinese independent refiners. Oman, alongside Russia’s ESPO grade, are the crudes of choice for these refiners, who have emerged as significant buyers on the international market. However, crude imports by the Chinese independent refiners have slowed down in the second quarter, as these companies used up the allocations assigned to them by the government under their “import quotas” in the first quarter and will now have to wait for the second round, likely to be allocated in June,” Hari explained.
Oman recently announced that it would cut crude oil exports to Asia by 15 per cent to meet local demand. The Sultanate’s Minister of Oil and Gas Mohammed Al Rumhy has reportedly said that Oman will push for an extension of production cuts, as it remains the most viable solution. The OPEC agreement expires in June and members of the organisation are meeting this month to decide if the agreement should be stretched till the end of the year.
Lifting production cuts, according to experts, may bring down prices to below $30, as more than 1.8 million barrels of oil may be pumped into the markets everyday flooding the already glutted market.
“I think we all understand that it is important to start diversifying the economy as the Omani government is doing. Companies in Oman need to start diversification process as soon as possible, as oil prices are unlikely to rebound in the current situation,” Raj Kumar Ahmed, CEO of Al Khalij Equipment said.