Inventory Glut Could Push Oil Down Further

Marco Green
March 18, 2017

If crude inventories remain high, the Organization of Petroleum Exporting Countries (OPEC) could extend its oil output cut deal, the Saudi energy minister said on Thursday. The move, enforced in January, helped bring oil prices back to around $50 per barrel, after crashing below $30 per barrel in early 2016.

Opec and its allies are nearly three months into a deal to reduce production in a bid to eliminate a global oil inventory surplus after three years of glut.

Oil prices initially rallied after last year's historic deal but erased most of their gains last week amid worries that the price recovery was spurring a revival in U.S. shale oil production.

Saudi Arabian Oil Minister Khalid al-Falih told Bloomberg that the US oil sector was a factor to watch.

He also recalled that by the end of April Russia plans to cut oil production reduction 300,000 barrels per day and maintain this level until the end of the first half of the year.

Brent and WTI were supported this week by US inventory data that showed a surprise drop in stocks and assurances that a deal to trim nearly 1.8 million barrels per day (bpd) from global markets in the first six months of the year was still on track, with the possibility of an extension still dangling. The agreement is set to last six months through June, but several Opec members are signaling an extension may be necessary.

Falih told Bloomberg the managed decline effort would continue "if the markets are still not confident in the outlook if we don't see companies and investors feel good about the health of the global oil industry".

Other reports by Click Lancashire

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