Oil prices rise on expectation of output cut extension

Marco Green
May 20, 2017

Higher crude output from the US should pressure global oil prices through the end of 2018, the USA government said May 9, ahead of a meeting later this month at which OPEC and non-member producers will discuss extending supply cuts.

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.

While US 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 is confident the global oil market will soon rebalance and return to a "healthy state".

Saudi Arabia's energy minister Khalid Al-Falih said on Monday oil markets were rebalancing after years of oversupply, but that he still expected the OPEC-led deal to cut output during the first half of the year to be extended. Aramco had previously been maintaining supplies to its important Asian customers.

Brent crude futures were up 20 cents at $49.54 per barrel at 0852 GMT, above a session low of $49.18, while U.S. West Texas Intermediate futures were up 21 cents at $46.64 per barrel.

The US Energy Information Administration stated that crude production is expected to rise by 9.31 million barrels per day in the US, a 440,000bpd increase from the previous expectation.

Oil major Saudi Aramco has told Asian refiners it will reduce supplies by about seven million barrels in June.

On Thursday, non-members Turkmenistan and Equatorial Guinea said they would join the cuts, though they are smaller producers.

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

US light crude oil, on the other hand, ended up $1.45 higher at $47.33 a barrel.

OPEC meets on May 25 and the group's ministers have been talking up the chances of more production cuts.

Oil prices pared gains on Thursday after the release of the report to trade at less than $51 a barrel LCOc1 , below the $60 level that top OPEC producer Saudi Arabia would like to see.

USA commercial crude inventories fell by 5.2 million barrels, versus estimates for a 1.8 million barrel decline.

Calling on United States to join in the rebalancing of global oil market, OPEC said "a large part of the excess supply overhang contained in floating storage has been reduced and the improvement in the world economy should help support oil demand".

While prices surged immediately after the agreement, in recent weeks they have come under sustained pressure as US production has ramped up.

Other reports by Click Lancashire

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