Iraq, Algeria support extension of oil production cuts

Frederick Owens
May 12, 2017

But prices, however, slumped in recent weeks due to rising US production, which undermined the OPEC-led efforts to reduce a global crude glut.

Global benchmark Brent crude was up $1.34 at $50.07 a barrel by 11:35 a.m.

Crude inventories USOILC=ECI fell 5.2 million barrels in the week to May 5, the U.S. Energy Information Administration said, compared with expectations for a decrease of 1.8 million barrels.

"Oil prices above $40 is a profitable level for most USA shale producers to keep pumping". Saudi Aramco will reduce supplies to Asian customers by about 7 million barrels in June. At 522.5 million barrels, crude stocks were the lowest since February. That topped forecasts for a draw of 1.9m barrels.

The bullish inventories report came in after crude prices dipped 1% when EIA highlighted its near-term outlook for US oil production and reiterates its estimates for oil prices.

The EIA forecast USA crude production at an average 9.31 million barrels per day in 2017, up 1% from the previous forecast.

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But after Brent prices fell back below $50 per barrel last week, analysts said producers felt forced to act. The agreement was concluded for the first half of 2017 with the possibility of extension.

Also supporting prices were comments from Algeria's energy minister on Wednesday that Algeria and Iraq favour extending global supply cuts when OPEC meets later this month.

Ahead of a May 25 meeting of the cartel where its members and Russian Federation are expected to roll over an agreement to cut production, OPEC said in its monthly market report that common policies were needed for market stability.

Oil prices have recovered somewhat this week as OPEC and Russian officials have signaled a renewal of the production deal is likely.

The chart below illustrates crude oil price movement amid an unexpected US stocks draw.

Not surprisingly, data suggest professional traders have been turning increasingly bearish on oil while trimming their long exposure to the commodity.

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