On May 26, Opec and 10 non-Opec countries decided to extend their production restraint for a further nine months to the end of March 2018. But the battle between producers wanting to increase prices and those fighting for market share continues, and weak prices and large swings betray the market’s uncertainty over who will set the price in the future.

The crude futures prices that form the basis of UK fuel prices ended the month $1.42/bl lower as the market doubts that Opec and other producers will be able to reduce the oversupply sufficiently to push prices up, despite an extension of their cuts.

UK retail prices are based on underlying futures prices and tend to follow them with a lag. In May, a 2.6% strengthening of the pound against the US dollar allowed forecourts to lower their prices in sterling more than the underlying dollar prices.

There are plenty of signs that the market is wary of possible output increases from other producing countries, such as Nigeria and Libya, which are exempt from the Opec discipline, and especially the US. Shale oil producers there have managed to lower their production costs yet again, making it harder for Opec to freeze them out of the market at current prices. US crude production has been on the rise again since October, and the US government forecasts output at the end of this year to be almost 1mn b/d higher than at the end of 2016 greatly weakening the effect of the 1.7mn b/d that Opec and non-Opec producers are taking out of the market through their production cuts.

Forward futures also show the market’s uncertainty over longer-term prices. Twelve-month forward prices average almost at parity with front-month prices and less than $1/bl above six-month forward futures. This contrasts with a $3.16/bl premium of 12-month prices to six-month ones a year earlier, when the market expected crude prices to firm over the coming year.

In the shorter term, the international oil market is approaching the season of peak consumption, led by the US driving season. This, together with the extended crude production cuts, should help reduce stocks just as Opec is planning.