Oil jumps, stocks and dollar steady with low volatility

Cornelia Mascio
Mag 20, 2017

USA light crude oil CLc1 was up 35 cents at $47.68.

State-owned Saudi Aramco will reduce oil supplies to Asian customers by about 7 million barrels in June, a source told Reuters, as part of OPEC's agreement to reduce production and as it trims exports to meet rising domestic demand for power during the summer.

Overnight, crude futures settled higher on Wednesday, as investors cheered the latest report from the Energy Information Administration (EIA), showing USA crude inventories fell more than expected.

In its monthly oil market report (MOMR), OPEC said the U.S. oil and gas companies have already stepped up activities in 2017 as they start to increase their spending amid a recovery in oil prices.

Production fell in the UAE, Libya, Iraq and Iran, but rose in Saudi Arabia and Angola, with Saudi Arabia's output up almost 50,000 barrels a day.

But prices, however, slumped in recent weeks due to rising USA production, which undermined the OPEC-led efforts to reduce a global crude glut.

High U.S. gasoline stocks have fed some concern about demand in the United States, where consumer spending expectations hit a three-year low last month and vehicle sales have fallen year-on-year for four months in a row.

Brent crude jumped back above US$50 on the news and stayed there, buoyed by the ministers' comments, while WTI, which last Friday slipped below US$45 a barrel, regained some ground, settling yesterday at US$47.91 a barrel.

Because of a lag between the deployment of drilling rigs and realized oil production, recent rig increases indicate that US oil production will likely rise further in the coming months.

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.

OPEC efforts are being undermined by a surge in drilling in the United States that is spurring a boom in shale oil production that may fill numerous gaps left by OPEC.

OPEC is curbing its output by about 1.2 million barrels per day (bpd) from January 1 for six months, the first reduction in eight years, to clear excess supply.

The producer group and other major suppliers including Russian Federation agreed previous year to cut their collective production by about 1.8 million barrels a day for the first half of 2017 in an effort to reduce bloated global stockpiles and re-balance the market.

Brent and USA light crude futures contracts closed on Tuesday at their second lowest levels since November 29, the day before OPEC announced it would cut output in the first half of 2017.

At 522.5 million barrels, crude inventories are at their lowest since February.

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