Crude Oil Drops As EIA Sees Increased Production

Marco Green
May 20, 2017

Oil prices rise in Asia in expectation of Aramco supply cut TOKYO: Oil futures rose in Asian trading on Wednesday after Reuters reported Saudi Arabia would cut supplies to the region as OPEC battles against rising USA output that is threatening to derail its attempts to end a sustained global glut in crude.

US crude production has risen by over 10 percent since mid-2016 to 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia.

US West Texas Intermediate (WTI) crude futures were at $47.57 per barrel, up 24 cents, or 0.5 per cent from the last settlement.

Meanwhile, crude prices bounced back above $47 and continued to surge as investors' sentiment on the rising levels of US oil output softened after the EIA reported a bullish inventory data.

In the United States, U.S. crude stockpiles posted their biggest one-week drawdown since December last week as imports dropped sharply, while inventories of refined products also fell.

Japan, the world's fourth biggest importer, consumes 7 million barrels roughly two days and Aramco had been keeping supplies to its major Asian customers previously.

The 13-country OPEC is curbing its output by about 1.2 million bpd from January 1 for six months, the first reduction in eight years. Brent Crude, used to price global oils, now trades at around $50 a barrel in London.

Saudi Aramco's decision to reduce oil supplies to Asia has seen prices rally again after recent declines.

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.

"OPEC and non-OPEC members have shown commitment to production cuts and an extension of the agreement. will assist in drawing stocks over Q3 and stabilising the market", BMI Research said in a note.

Alexander Novak, the Minister of Energy of the Russian Federation, said Russia is ready to support extending the oil deal beyond 2017.

In the research note entitled Oil Nearing Capitulation, Goldman Sachs said there was "growing evidence of the ability of U.S. shale to respond near $50 per barrel and the availability of capital to support such activity", according to MarketWatch.

While U.S. shale output growth and the shutdown of refineries for maintenance have slowed the impact of cuts by OPEC and its partners, the Saudi minister said he's confident the global oil market will soon rebalance and return to a "healthy state".

Other reports by Click Lancashire

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