From Citi:
Will OPEC (and non-OPEC producers) extend their production cut? For now, the group says it will continue to observe market conditions and meet again in late April; Citi expects group coherence to ultimately prevail, and production cuts (as needed to support prices) to be extended in 2H’17 (see Energy Weekly, 21 March 2017). Energy ministers from OPEC and non-OPEC producer countries met this weekend, with all the OPEC participants expressing support for extending the cut, though Russia did not. (The meeting never had a mandate to make a decision on the cut either way.) This did not give markets enough comfort as oil traded down on Monday morning, after selling off earlier in March on concerns over petrostate compliance and a robust rebound in US shale activity, while US oil inventories remain stubbornly high into March. However, the petrostates had set themselves up for poor 1Q optics as they surged production and exports ahead of the January 1st start date for the output deal. The March 8th oil selloff and aftermath also came after money manager positioning for crude oil futures and options looked overextended (see Commodities Flows) but has since reverted.
Oil markets should be tightening up regardless, particularly in 2Q as crude and product demand begins to pick up seasonally, non-OPEC supply continues to decline, and the earlier OPEC/non-OPEC supply surge tapers off. Oil demand is expected to rise by ~1-m b/d quarter-on-quarter in 2Q, while crude demand should start to pick up too, as refinery maintenance is peaking soon; US refinery maintenance should now drop sharply (though it continues in Asia through 2Q). Meanwhile, non-OPEC oil supply is expected to fall ~0.1-m b/d q/q even factoring in US oil production growth, and while Brazilian supply should also be growing, there should continue to be declines in Mexico, China, and Colombia. Canada should see seasonal 2Q-3Q maintenance too. Combined with the OPEC supply surge fading and Russian cuts deepening, balances could tighten by some ~0.4-m b/d 2Q versus 1Q (though Russian crude export schedules could rise).Tail risks remain of Libya or Nigeria bringing back disrupted supply to market, though Libya now looks to have just lost ~250-k b/d on the Sharara pipe shut-in.
