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

Opec looking at extending output cut

Eleven non-Opec countries are participating in the supply cut.

Crude oil prices were in full rally mode early Friday morning, though fundamental market factors indicate supply-side strains would kick in as higher oil prices make conditions favorable to more US oil production.

The Organization of the Petroleum Exporting Countries and other producers including Russian Federation pledged to cut output by nearly 1.8 million barrels per day (bpd) in the first half of 2016, a deal likely to be extended until the end of March 2018.

The fundamentals have been friendly for crude oil this week, but standing in the way of an even bigger rally has been a major retracement zone.

United States production has also increased and will continue to do so, especially if additional cuts help boost the price.

The lingering perception that the glut of crude oil on the global market has been persistent helped push crude oil prices sharply lower early Thursday.

OPEC will hold a highly anticipated meeting next week, with almost everyone so far predicting that members will agree to extend production cuts at least through the end of this year. Prices are up 4.7% this week, the most since the period through March 31.

Oil - US Crude: As of May 8, retail trader data shows 68.0% of traders are net-long with the ratio of traders long to short at 2.13 to 1.

Among the scenarios being considered by the Opec panel were a six- or nine-month extension with a possible deeper cut, sources said.

Domestic crude production dipped for the first time in three months, while inventories declined less than expected.

However, the drawdown was smaller than expected, and many traders say there is still more oil in the system than the market can absorb. Gasoline and distillate inventories also declined. Gasoil includes jet fuel, diesel and heating oil.

Meanwhile, the USA government has commended Nigeria for the significant steps it has taken to reform the oil and gas industry through the National Oil, Gas and Fiscal policies as well as the draft Petroleum Industry Governance Bill and Petroleum Industry Fiscal Bill developed by the Ministry of Petroleum Resources.

Whatever the outcome of the much-anticipated meeting, oil producers will still face a dilemma.

The Energy Information Administration said USA crude stocks declined for the sixth straight week.

Traders said news that the campaign to elect President Donald Trump a year ago had at least 18 undisclosed contacts with Russians had unsettled investors. Record breaking US inventory figures in the first quarter were also weighing on the oil prices. "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.

American shale has been particularly responsive to the higher price range because it is less capital intensive than other ventures.

On the demand side, The IEA reiterated its forecast rate of growth at 1.3 million bpd for this year, to a total 97.9 million barrels, although over the first half of the year demand will grow more slowly because of India, the U.S., Germany, and Turkey. Global benchmark Brent topped $52 per barrel, and has lingered close to that price.

Oil headed for a second weekly gain on the expectation that OPEC will reaffirm efforts to drain a global glut.

OPEC agreed to slash the output by 1.2 million barrels per day from January 1.

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