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Oil traders increase Saudi Arabia's response in critical time for crude oil



A gas flame is seen in the desert near Khurais oil field near Riyadh, Saudi Arabia.

Ali Jarekji | Reuters

Global oil markets are at a critical time, with the risk of balancing against rising prices and questions about whether major manufacturers will hit the cranes.

Brent crude touched $ 75 a barrel last time for the first time this year, helping the reference log a fifth positive week in a row and adding the year's near 40% win.

"This is definitely something we need to monitor," said UBS APAC's chief investment manager Adrian Zuercher to CNBC's "Squawk Box Asia".

"It will remain volatile," he added. "We expect Brent to stay between $ 70 and $ 80 at this point."

WTI also moved over $ 65 a barrel, although rising US stocks and rising US production reduced some of the recent price move.

Renewed US efforts to combat Iranian production, increasing tensions in Libya, supply failure in Nigeria and the ongoing crisis in Venezuela have created a complex and uncertain outlook for crude oil.

The week ahead will be another great test, with Iranian sanctions abort that officially expires in early May and the US decision to cancel all concessions that pose new questions about how Saudi Arabia and other major producers will respond.

"We now know that OPEC has the extra capacity," Goldman Sachs & # 39; Head of Commodities Research Jeff Currie told CNBC's "Power Lunch" and repeated his Brent forecast of $ 70-75 bar for second quarter 201

9 .

"They hit it up, they took it down again, and we think that (Iran) shock is about 900,000 barrels a day, and we saw OPEC, at least core OPEC, and take 1.8 million barrels per day outside the market, "Currie added.

The decision to close the exemptions could remove 1.3 million barrels per day of Iranian exports, according to S & P Global Platts. OPEC has about 3.3 million barrels per day of spare production capacity, according to the International Energy Agency, of which about 2.2 million barrels per day are held by Saudi Arabia.

While it is able to do so, whether Saudi Arabia or the United Arab Emirates (UAE) are willing to increase the offer to make up for the Iranian deficiency remains to be seen. The insurance provided to the United States lacks specific details, and no formal agreement has been established. Both countries have also been vocal advocates of discipline within the OPEC plus production agreement.

Now there is increased diplomatic pressure to reverse course.

Saudi Energy Minister Khalid al Falih said at an event in Riyadh last week, suggesting that he will not pump beyond the agreed cap of about 10 million barrels a day by failing to magnify and increase production. at least for now.

But what Saudi Arabia does next will be closely monitored.

The joint ministerial meeting in Saudi Arabia on May 19 will be the first opportunity for Saudi Arabia and OPEC plus to telegraph their intentions for the second half of the year. The meeting will also set the stage for a critical gathering of OPEC on June 25, just days before the current production downturn agreement expires.

OPEC plus is likely to agree to expand the cuts in the second half of the year, but the dismissal of the Iran deviations and a number of other uncertainties on the supply side mean that a volume adjustment could be on the agenda.

Relaxation of the agreed supply edges would appease the United States and probably temperate oil price growth. But it can also risk testing the fragile and hard-fought unit of the OPEC plus, and more importantly, it will destroy the savings production capacity at a time of increased geopolitical risk.

The reduction capacity will reduce the group's ability to deal with unforeseen security of supply factors coming from fragile manufacturers such as Venezuela, where the United States crumbles additional sanctions that may further crush production, or Libya; where a battle in the capital threatens to rewind to the country's oil-producing assets.

"If we lost Libya from the market, it would take extra capacity to very unpleasant levels, and it would certainly add a huge risk premium to oil," Neil Beveridge, senior oil and gas analyst at Bernstein, CNBC's "Squawk," said. Box Asia ".

Instability in Algeria, Nigeria and Sudan, as well as the recent suspension of some Russian crude exports to Europe, are also problems that OPEC-plus will see.

"Sometimes you have to look in the rear view mirror to predict where the future goes," Khalid al Falih told CNBC back in February.

"I lean against the likelihood of an extension during the second half, but it's not automatic," he added.

"If we find that fundamentals are tight, you can claim in June that I would be, just like last year, encouraging colleagues in OPEC plus to ease their volunteer boundaries."

Now the market looks to see exactly which way Saudi Arabia will lean.


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