Oil prices rise on expectation of extended crude supply cut

Jay Anderson
May 18, 2017

Members of the Organization of Petroleum Exporting Countries (OPEC) and Russian Federation may have made a deal to extend production cuts in hopes of reducing the world's oil stockpiles.

Oil prices are holding near unchanged Tuesday with concerns about strong imports to the US erasing earlier gains tied to optimism about extended production cuts from the world's biggest exporters.

It has been suggested that United States output, which is not included in the deal, might scupper the agreement, however, the current weak oil price makes exploitation of USA shale oil deposits marginal, so the U.S. also has a vested interest in seeing the oil price rise from a producer's perspective, but this is tempered as the United States is the largest market for oil.

Global benchmark Brent crude settled up 98 cents, or 1.9 percent, at $51.82 a barrel, having touched $52.63, the highest since April 21.

USA crude output has surged about 10 percent since September, driven by new Gulf of Mexico and shale output.

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Futures were little changed in NY. "There are no fast solutions to end this situation, and the only solution possible is to let oil prices work their way" to clear the oversupply, Al-Husseini said from the Saudi city of Dhahran.

U.S. stockpiles probably slid for a sixth week, according to a Bloomberg survey before a government report Wednesday.

"It has taken some time for stocks to reflect lower supply when volumes produced before output cuts by OPEC and eleven non-OPEC countries took effect are still being absorbed by the market", the report said. The EIA data is due out Wednesday, but even before that, the market is expected to respond to the corresponding statistics from the industry body American Petroleum Institute, which will be released later Tuesday. Official data from the USA government follows on Wednesday mornings, and could reset the course of the oil market for the next week.

"It looks a little vulnerable, especially if the market starts to think the (inventory) stats aren't going to be that great", Mr. Navy said.

Elsewhere on Nymex, gasoline futures for June climbed 1.2 cents, or roughly 0.8%, to $1.606 a gallon, while June heating oil added 1.4 cents to $1.523 a gallon.

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