Oil prices rise halted with new OPEC disagreements

The rally that oil prices have been experiencing since last week came to a sudden halt as the deal to extend the production cuts that saved the markets from self-destruction faced threats from some errant OPEC+ members. Palm-admitting names in the head of analysts at Rystaad Energy joined CNBC Africa to shed light on the situation. The recent disagreements within OPEC have raised concerns about the solidarity among member countries and the future of oil prices. The deal to extend production cuts is crucial for maintaining stability in the oil market, especially amidst the current global economic challenges. With oil prices now hovering above $40 for the Brent benchmark, there is cautious optimism about the industry's gradual recovery. One of the key points highlighted in the interview was the significant drop in oil prices earlier this year, particularly in April and May. During this period, the actual crude prices in regions like West Africa were much lower than the benchmark, leading to financial strain for oil operators. However, the recent recovery has been quicker than expected, with field prices now aligning closely with the benchmark. This swift turnaround from extreme lows to stability around $40 is a positive sign for the industry. Another crucial aspect discussed was the impact of production cuts by major oil-producing countries like OPEC, Russia, and the United States. The accelerated pace of production cuts has prevented oil storage tanks from reaching capacity, thanks in part to floating storage solutions. The United States alone has reduced its production by around 3 million barrels per day since March, contributing significantly to the market's stability. The collaborative efforts to control production levels have been instrumental in averting a complete collapse of oil prices. Despite the optimism surrounding production cuts and market stability, there are challenges ahead, particularly regarding the easing of lockdown measures in various countries. The fluctuations in demand for different oil products, such as gasoline and diesel, have added complexity to the market dynamics. Refineries have had to adjust their operations to align with the shifting demand patterns, leading to changes in the production of jet fuel and gasoline. As the global storage of oil products gradually decreases, the focus now shifts towards reducing the excess crude oil inventories accumulated during the peak of the crisis. Looking ahead, the main drivers of oil prices in the coming weeks will be a combination of improving demand and continued production cuts. The gradual recovery in global oil demand, with estimates projecting a decrease of around 12 million barrels per day in the third quarter, indicates a positive trend. If OPEC extends the production cuts into July, the global oil stocks are expected to decline further, potentially pushing oil prices towards the $50 mark. However, challenges may arise as U.S. shale production resumes, requiring delicate balancing from OPEC to maintain price stability throughout the year. In conclusion, while the recent disagreements within OPEC have caused a temporary pause in the rise of oil prices, the overall outlook remains cautiously optimistic. The collaborative efforts of major oil-producing countries, coupled with improving demand trends, offer hope for a more stable and resilient oil market in the months to come.