A series of unexpected disruptions in the world oil market has driven crude to the $50 per barrel level more swiftly than expected — a factor that makes OPEC and its meeting Thursday less relevant.
Both international Brent and West Texas Intermediate crude futures crossed above $50 Thursday, though analysts expect prices to temporarily head lower again in the next couple of months as some supply returns and demand drops off as it does every year after summer driving season peaks. By year end, however, $50 or above is expected to be the norm. Oil production in the last several weeks has dropped by several million barrels a day due to everything from forest fires in Canada to rebel attacks in Nigeria.
"We always said $50 by Q4 because the rebalancing would be a slow rebalancing," said Helima Croft, head of commodities strategy at RBC Capital Markets. "The reality is OPEC has cut. It was an unintentional cut on the part of Nigeria. OPEC doesn't have to do anything, because they are down 800,000 barrels by one country. ... Nigeria can balance this market. When Nigeria goes offline, they go offline for a long time."
OPEC heads into its June 2 meeting in Vienna with its members having failed to reach a consensus during an April meeting among the world's major oil-producing countries in Doha. At that meeting, Saudi Arabia surprised fellow producers, including Russia, by agreeing to meet and then refusing to agree on a production freeze unless Iran did the same. The day after that meeting, WTI was as low as $37.61 per barrel.
"The oil market's move to rebalance has been accelerated by disruptions. Canadian oil is returning, but concern continues to mount about the big losses from Nigeria and the grim outlook for Venezuela as the Maduro regime struggles to hold on to power. It's also notable that U.S. and Chinese imports of oil this summer will be more than a million barrels higher than last summer, owing to declining production and rising demand in both countries," wrote IHS Vice Chairman Daniel Yergin.
"Fifty dollars is a big marker, and a signal. But volatility will continue. Production levels by Gulf producers will be a key factor as we head into the summer," Yergin noted. "This further reduces the pressure to do anything at the OPEC meeting."