Saudi Arabia may extend oil output cuts beyond 2017

Cornelia Mascio
Mag 18, 2017

Crude prices had hovered near five-months lows earlier this week, but surged yesterday after the Energy Information Administration released data showing a 5.2 million barrel drop in USA crude stockpiles for the week ended May 5, far exceeding market expectations.

While US oil inventories fell, the country's crude oil production continued to rise, jumping above 9.3-million barrels a day last week, in what is now a more than 10% increase since its mid-2016 trough.

For the week ended May 3, the EIA said that crude oil inventories fell by 5.25 million barrels, which confounded expectations of a draw of 1.79 million barrels.

Venetis did not outline what "brisk" demand should consist of, but presumably it's more than what the U.S. Energy Information Administration on Tuesday forecast: it raised its 2017 world oil demand growth forecast by 70,000 barrels per day (bpd) to 1.56 million bpd.

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.

Lower crude oil prices, meanwhile, mean lower gasoline prices and USA consumers could put some demand pressure back in the market in the way of travel plans for the upcoming Memorial Day holiday.

Benchmark Brent crude settled up 24 cents, or 0.5 percent, at $49.34 a barrel.

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

Consequently, the EIA has revised the Brent and WTI prices down for 2017, to $52.6 and $50.68 per barrel respectively.

Brent crude was up 57 cents, hovering at $50.79 per barrel, while US West Texas Intermediate jumped 61 cents to $47.94.

The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russian Federation have pledged to cut output by nearly 1.8 million barrels per day (bpd) during the first half of the year.

"As a result, USA crude oil production surpassed 9 mb/d in February 2017, about 0.5 mb/d higher than the low seen in September 2016". "One factor weighing on trader positioning is US crude production, which continues to climb and offset the impact of OPEC-supply cuts".

The slide had worsened after OPEC delegates downplayed the chance that their group and other producing countries would deepen their output cuts when they meet on May 25.

"Chief among (the) oil market's worries is that the renewed rise in USA oil production is reducing the speed at which the supply surplus is being eroded", said Fawad Razaqzada, market analyst at Forex.com told Reuters.

On Monday, Saudi Arabia's oil minister Khalid al-Falih said he expected the output deal to be extended to the end of the year or possibly longer.

Aramco and other producers typically issue monthly notices to refineries and other buyers with contracted supplies outlining their intended allocations to each customer.

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