OPEC output cuts falls short of expectations: Angel Commodities Broking

Views by Mr. Prathamesh Mallya (Chief Analyst - Non-Agri Commodities & Currencies, Angel Commodities Broking):

"The outcome of the OPEC meeting which was scheduled on 25th May 2017 decided to cut 1.8 million barrels per day through March 2018. This is surely an effort in the right direction in order to remove the bloated inventories from the market.

The forward curve for WTI and Brent remains in favor of a contango situation (where the future prices are higher than the current prices) till March 2018, indicating that producers are ready to keep the oil markets supplies in expectations of higher price in the future rather than in the present encouraging the producers to sell the produce at higher price at a later date.

Oil markets and investors are a troubled lot with situation like a pendulum or a double edged sword wherein the benefits of lower production by the OPEC members are getting compensated with higher production from the US. Beyond bloated inventories, one of the main reasons markets have not tightened more has been U.S. oil production, which has soared more than 10 percent since mid-2016 to 9.3 million bpd.

All in all, if US decide to releases it's SPR (Strategic Petroleum Reserves) this will further add pressure to oil prices. If this is a falling knife, it is better to stay out of oil counter, unless the situation normalizes.

For further development in oil markets, it is a wait and watch approach."

Source : Equity Bulls

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