The Quiet Bull Market in Oil

However, other analysts were sceptical about further price gains due to higher oil output from the US.

"If OPEC do not extend their cuts beyond 1Q 18, we would no longer see stock draws from 2Q 18 and we forecast builds from 3Q 18", she said.

OPEC and its partners chose to extend its production cuts till March 2018 in Vienna on May 25, as the oil cartel and its allies step up their attempt to end a three-year supply glut that has savaged crude prices and the global energy industry.

"With the appearance of shale oil in the market, the situation with pricing has changed quite seriously: the U.S. can turn prices on and off: when a speculator reads that the United States is dramatically increasing the production of oil shale, it works on him".

The result is that, while official forecasts as recently as last month pointed to United States crude production reaching 9.82 million barrels per day (bpd) by December 2017, the Domestic Energy Producers Alliance sees it at 9.35 million bpd. For the first time in the course of this cycle, storage levels above the five year industry average have plunged below 200mb/d from a record 380mb/d last year, which now stands at 170mb above the five year average.

Estimating that level is obviously an inexact science, but its worth noting that the two biggest months for US crude arrivals in Asia this year were April and June.

"I think we all are happy to hear this news about a two-year high". Of this 170mb, 137mb constitute crude and a mere 33mb are products. These figures confirm beyond all reasonable doubt that the market is rebalancing.

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To avoid the oversupply, Libya and Nigeria, which have been exempted from obligations, promised to freeze or even slightly reduce production after reaching a certain level of production. In terms of our core principles of equity, fairness and transparency, could we have achieved all these remarkable feats without the over-performance of some participating countries? No!

When asked if his country would adjust its own output if required, Zanganeh replied that Iran "will consider everything within the framework of our national interest and cooperation with OPEC".

"Demand growth remains robust, with the projected 2mb/d in 2H17 on course to materialize". All factors point to headwinds ahead.

That's the situation right now, but the market looks more challenging in early 2018, when supply may surge again, according to David Fyfe, chief economist at oil trader Gunvor Group Ltd.

"We have also witnessed a distinct change in the market structure over the past couple of months, initially with a narrowing contango and more recently when Brent flipped into backwardation". When the producers group met last week in Vienna, they stopped short of recommending an extension, while Russian energy minister Alexander Novak emphasised the need to start planning an exit strategy.

Intensive refining activity over the next few months as refiners try to stabilise and rebuild fuel stocks should ensure strong demand for crude. The IEA now expects global demand to increase by 1.6 mbpd this year while Opec estimates global demand growth by 1.42 mbpd.

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