After four months at an unusually stable level of USD 54-57, the price of crude oil has recently eased by 10% to USD 51. The reason for the pronounced correction must be seen against the background of rising US crude oil inventories: there is growing uncertainty as to if and when OPEC will reach its target of normalisation of global crude oil inventories.
Indeed, inventories have not been reduced, largely due to the success of the US shale gas enterprises in quickly driving up output again. Furthermore, some investors appear to have had somewhat overambitious expectations concerning the speed at which inventories would be reduced.
Given the difficult situation that OPEC (still) views as a suboptimal, OPEC and its NOPEC partners are likely to agree during Q2 2017 on a modified six-month extension of the agreement to reduce output. Ahead of the OPEC summit to be held in Vienna on 25 May, Saudi Arabia in particular will express itself again ambiguously and vaguely about the progress being made and influence the shape of the crude oil forward curve to its own advantage by means of this rhetorical intervention. We believe Riyadh wants to hold crude oil at around USD 50-55 up to the end of H1 2017, so as to slow down the recent expansive upward momentum in shale oil production in the US.
We can thus expect very little change on the crude oil market in the months ahead, with the price of oil fluctuating around the USD 55 mark.