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Opec risks hammering the oil price if they do not extend the cartel’s oil supply cuts when it meets in two weeks, a top Vitol executive warned on Thursday, but said attempts to increase the size of the cuts would only strengthen US shale producers.
Chris Bake, who sits on the executive committee of the world’s largest independent oil trader, said weak demand in the first quarter and the rebound in the US shale industry had left global inventories bloated.
“The market is expecting OPEC to roll. It will be really difficult if there’s a surprise from Opec,” Mr Bake told the Financial Times on the sidelines of S&P Global Platts oil conference in London.
“They’re in a ‘Catch 22′ though. If they increase the size or length of the cuts then US shale drillers and going to come back in a year and thank them very much.”
Opec is due to meet in Vienna on May 25 to decide whether to roll over existing supply curbs of 1.8m barrels a day in total agreed with large rivals like Russia at the end of last year. Cartel members have indicated an agreement to extend the cuts by another six months is likely.
Mr Bake said prices were still languishing near $50 a barrel as a warm winter had weakened demand for heating fuels in the first quarter while global inventories of oil had not drawn significantly.
“OECD stocks of crude and products have come down a little but incremental demand growth was less than 1m b/d in the first quarter and global stocks remain high,” Mr Bake said.
He dismissed the suggestion that oil stocks in regions that do not have timely data may have fallen faster, an argument put forward by some in the market.
He said conditions for traders were more “challenging” in 2017 due to “dampened demand and fewer opportunities”.
Vitol traded a record 7m b/d in 2017 of crude oil and products, making it the largest independent trader ahead of Glencore and Trafigura.