It will be a long four weeks for oil markets in the lead-up to a gathering of OPEC members and other crude-producing nations, but the meeting will ultimately result in nothing, according to Matt Smith, director of commodity research at ClipperData.
Traders have been hanging on every word from ministers of petro states after officials confirmed earlier this month they would speak on the sidelines of the International Energy Forum next month about taking measures to prop up oil prices.
But Smith noted that Saudi Arabia’s crude production has recently hit a record high. Its exports have increased by about 1 million barrels per day since early 2015 to 7.5 million barrels per day, according to ClipperData research.
“They’re just putting more oil onto the market. We’re seeing more oil coming onto the market from Iran, as well, and from Iraq, and so the rhetoric and the actual actions are very different,” he told CNBC’s “Squawk Box” on Monday.
In the absence of a deal to freeze production, oil prices are likely to remain stuck in a range between $40 and $50 a barrel into next year, when the impact of deep cuts to capital spending that have delayed big drilling projects finally shows up in reduced output, Smith said.
Until then, crude futures’ 200-day moving average will provide a technical level that is likely to keep prices above $40, he added. When oil nears $50, U.S. shale drillers will continue to add more rigs to take advantage of higher prices, particularly in regions with low-cost wells like the Permian Basin in Texas and New Mexico, Smith said.
That increased drilling puts pressure on prices as traders fret over increased production in a market that has struggled to work through oversupply for roughly two years.