Oil prices climb on hopes output cuts will be extended

19 Mai, 2017, 19:12 | Author: Marc Bacque

OPEC is scheduled to meet on 25 May to decide the production policy and extension of the deal by nine months.

Oil prices have been trapped in a tight range in recent weeks as rising USA production has erased the effects of output cuts by Opec and other countries, including Russian Federation. "While most remain optimistic over Opec extending the production deal at the upcoming meeting on 25 May, it becomes a question of how U.S. shale reacts and if (American) pumping intensifies".

The market has not strengthened enough to drain many major storage facilities around the globe - which OPEC oil ministers had hoped would be a first step toward rebalancing what has been a buyer's market since late 2014.

USA futures rose as much as a 1.5 percent, heading for the biggest weekly gain since March.

At Multi Commodity Exchange, crude oil for delivery in current month was trading higher by Rs 24, or 0.75 per cent, to Rs 3,227 per barrel, in a business turnover of 3,156 lots. But in terms of whether this will be sustained-that would depend on "adherence to the supply cuts" and global demand expectations, as well as factors outside of OPEC's control, including USA production, he said.

Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce output by 558,000 barrels per day starting from January 1, 2017 for six months, extendable for another six months.

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Traders also seem to be overlooking the persuasive argument that given huge stockpiles and less-than-stellar global demand, an OPEC extension without deeper cuts will have minimal positive impact.

Michael Wittner, global head of oil research at Societe Generale, said the market was well on its way toward bracing for an Opec cut.

Both benchmarks increased after the Energy Information Administration reported a decline of 1.8 million barrels in the United States inventory to 520.8 million barrels in the week that ended on 12 May.

Oil prices have gained support from reduced output but high inventories and rising supply from producers not participating in the accord have limited the rally, pressing the case for extending the curbs. "On the other, there are those who are focused on the real drawdowns that have started to occur in USA oil stocks over the past month or so", he said.

A bigger, quicker surge in US production than hitherto seen also threatens to frustrate the OPEC/non-OPEC strategy to achieve market equilibrium.

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