Published: Fri, May 19, 2017
Business | By Max Garcia

Oil prices climb on hopes output cuts will be extended

Oil prices climb on hopes output cuts will be extended

On May 25, leaders from OPEC and other producing countries will meet in Vienna to decide on output policy.

Brent crude was up $1.18 at $53.29 at 12:10 p.m.(1610 GMT), while USA benchmark crude oil was up $1.13 at $50.48. USA benchmark crude oil was up 61 cents at US$49.96 a barrel, having touched US$50.00 earlier in the session.

According to Algeria's Boutarfa, most OPEC countries back the Saudi-Russian idea to roll over the cuts for another nine months in a bid to draw down persistently high oversupply and lift oil prices.

While analysts had argued that at the current rate of production, global inventories would take too long to rebalance, so the cuts needed to be deeper, but no comments were coming from OPEC on that point.

In late November, OPEC agreed to cut production by 1.2 million barrels a day, the first such reduction agreement since 2008.

American oil production is approaching record levels again, led by shale projects, potentially foiling efforts by OPEC to support prices.

Distillate stockpiles, which include diesel and heating oil, fell 1.9 MMbbl, vs. expectations for a 1.1 MMbbl drop, the EIA data showed. Brent crude also rallied 1.7% to $52.51.

Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, said hedge funds expected the crude glut to recede.

And analysts now say United States shale production will grow even faster than expected. USA crude stockpiles fell by 1.8 million barrels vs. a drawdown of 2.4 million analysts were expecting.

Still, there are signs that Saudi Arabia, OPEC's largest producer, is keeping markets well supplied. Further, other OPEC nations, which did not participate in the previous cut, like Nigeria and Libya, will be adding more oil in the market and would continue to do so. In line with "stronger recent performance from the USA shale sector, we have revised upwards our expectation throughout 2017, and we now expect total USA crude production to exit the year 790,000 b/d higher than at the end of 2016, which is an upward revision of 100,000 b/d since last month's report". Data released on Thursday shows that even Saudi Arabia has increased sales in the market by 275,000 barrels a day. That's countering optimism after government data showed USA stockpiles dropped last week for a sixth straight weekly decline and crude production fell for the first time in 13 weeks, ending the longest stretch of gains since 2012.

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