Oil Edges Higher As OPEC Reaches Consensus On Cut Extension

Marco Green
May 15, 2017

Oil prices have fallen amid a consistent increase in USA crude output that undermined the impact of the reports that the ongoing OPEC-led output cuts may be extended.

Crude inventories fell 5.2 million barrels in the week to May 5, the U.S. Energy Information Administration said. It has reduced output by more than 500,000 bpd so its total production now runs slightly below 10 million bpd, mostly involving cuts in output of medium and heavy oil grades.

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

But global inventories remain high, pulling crude oil prices back below $50 per barrel and putting pressure on OPEC to extend the cuts to the rest of the year.

Nasdaq reports in its article Difference between output and exports bedevils OPEC oil goals that while OPEC and its allies appear to have been relatively successful in implementing their planned output cuts of 1.8 million barrels per day (bpd), this has yet to show up in a meaningful way in the amount of crude oil being transported by ships. Despite signals from OPEC that production cuts could last well into 2018 with larger production curbs than the first, Crude Oil seems to be without a bid.

OPEC meets on May 25 to decide whether to extend the cuts.

So far, however, there have been few signs that global markets are actually tightening as producers shielded their biggest customers, especially in Asia, from the cuts.

Norwegian consultancy Rystad Energy said that "U.S. oil production has gained significant momentum" and that there was "limited downside risk in the short-term".

Despite these statements from Saudi Arabia, crude prices remain near levels seen before OPEC announced its plans to cut late past year.

"Those claims do not withstand the reality check with the inventories staying stubbornly high and non-OPEC production rising strongly". Production from all 13 members slipped by 18,200 barrels a day to 31.73 million last month, with Saudi Arabia continuing to pump below its official target.

So the iPath S&P GSCI Crude Oil Total Return Index ETN (OIL), climbed 0.8%, extending yesterday's almost 4% surge, and the U.S. Oil Fund (USO) rose 0.9% to $9.94. Saudi Aramco will reduce supplies to Asian customers by about 7 million barrels in June.

Libya and Nigeria were the only OPEC states to be excluded.

Other reports by Click Lancashire

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