Oil up on falling USA inventories, Saudi cuts to Asia

Cornelia Mascio
Mag 19, 2017

Despite an overall drop in OPEC crude production in April, Saudi Arabia's output increased, according to a monthly report from the cartel out Thursday.

US crude production is expected to rise by more than previously expected in 2017 to 9.31 million barrels per day from 8.87 million bpd in 2016, a 440,000 bpd increase, the US Energy Information Administration said.

Saudi's Oil Minister Khalid al-Falih said he's "rather confident" OPEC will extend its production cuts into the second half of the year and "possibly beyond".

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.

The price of Brent crude fell 10% to as low as $46.64 a barrel last week, its lowest level since November as traders became impatient with OPEC's attempts to force a return to higher oil prices.

An agreement led by the Organization of Petroleum Exporting Countries to calm the market with managed production declines has created economic conditions supportive of US shale oil production gains, which is capping any major rally in crude oil prices.

"U.S. crude oil production is now solidly above 9.3 million barrels per day with more to come, and refined product, especially for gasoline, is oddly weak", John Kilduff, partner at hedge fund Again Capital in NY, told Reuters. At 522.5m barrels, U.S. crude oil inventories are near record levels.

Meanwhile, Brent crude oil, the worldwide benchmark, is up 1.9% at $49.89 per barrel on Wednesday, and has lost 12.4% this year. Russian Federation also said it was discussing prolonging cuts with other producers beyond 2017.

In addition to the potential extension of the OPEC agreement into 2018, some ministers have also discussed the possibility of deepening their output cuts, said four delegates.

U.S. bank Goldman Sachs said that USA shale drillers "fundamentally changed" the oil industry due to their ability to ramp up output much faster than conventional producers.

Falih said nearly all of the expected oil demand growth in the next 25 years was likely to come from Asia as the region's population grows, with countries such as Vietnam and the Philippines rising into the ranks of top 20 global economies.

USA crude stockpiles have declined for four weeks after reaching the highest level in more than three decades at the end of March.

State-owned Saudi Aramco has told Asian buyers it is curtailing supplies for June to meet its commitments for the output cut, one of the sources at a refiner in South Korea said.

Nigeria, which along with Libya is exempt from OPEC cuts, is also expected to see a jump in output soon as Shell tests the Trans Forcados oil export pipeline before it restarts.

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