Oil prices edge up in anticipation of extended crude output cut

Gladys Abbott
May 11, 2017

Oil prices bounced in early morning trade after the Saudi energy minister said he expected a six-month deal to limit production would be extended through 2017 and possibly into next year.

The price of Brent crude is now trading at $49.12 a barrel while Western Texas Intermediate is at $46.32.

Brent futures LCOc1 were up 19 cents, or 0.4 percent, at $48.92 a barrel at 0612 GMT.

Oil rose on Tuesday but faced headwinds from concern over slowing demand and the rise in US crude output that has shaken investors' faith in the ability of OPEC to rebalance the market.

A cornerstone of the Saudi promise to rebalance the market would be to extend, potentially into 2018, a pledge led by the Petroleum Exporting Countries (OPEC) and other producers including Russian Federation to cut output by nearly 1.8 million barrels per day (bpd) during the first half of the year. Although this would be seen as OPEC declaring Shale victorious in the production war and would also further weaken the credibility of oil producers who, until just a few years ago, were in full control of global oil production, it would most probably achieve a stronger rebound in the price of Oil.

Still, the notification of cuts in June allocations signals added urgency among Opec members as evidence mounts that the output reduction has so far failed to rein in a global crude glut in crude.

Opec and its allies have run out of options ahead of their meeting at the end of this month, as oil prices slide.

United States crude oil inventories fell by 5.8-million barrels last week, above analysts' expectations for a 1.8-million barrel decline, according to industry group the American Petroleum Institute.

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He said a deal on cutting output could extend early into next year.

Crude prices held gain in Asia on Wednesday as industry estimates showed a much sharper draw in USA crude inventories expected, though higher than seen gasoline stocks dimmed sentiment.

He told Reuters that OPEC and major non-OPEC producers were close to agreeing a deal on supply cuts. "Six months is not enough as we'll still be well above five years average of stocks".

Saudi Energy Minister Khalid al-Falih also talked of extending curbs beyond 2017.

On the physical markets, barrels of North Sea crude changed hands at their lowest levels since late 2015 on Monday.

"It's all about inventories and US shale versus OPEC", Sayed said.

In other news, the US oil drilling rig count rose by 6 rigs to a total of 703 operating in American fields, marking the 16 straight week of increases, according to Baker Hughes.

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