Published: Sat, May 20, 2017
Business | By Max Garcia

Oil heads for second week of gains as output cut extension expected

The International Energy Agency said on Tuesday commercial oil inventories in industrialized countries rose 24.1 million barrels in the first quarter of 2016.

US crude oil was 16 cents lower at $48.91 and Brent crude fell by 17 cents at $52.04 a barrel.

In the larger scenario, supply cuts are expected to continue to have a restricted effect on prices, while they have led to a change of market share from OPEC and Russian Federation to the U.S.

After settling Thursday at three-week highs, light, sweet crude futures for delivery in June CLM7, +0.91% on the New York Mercantile Exchange were recently up 0.8%, or 41 cents, at $49.76 a barrel in the Globex electronic session. USA crude has gained more than 2% only seven times in 2017.

In the hour before the start of trading on Wall Street, the price for Brent crude oil was down 1.7 percent to $51.33. Yet, production in the USA has been increasing, threatening to derail the group's goal. And Brent rose 5.4%, its best week in six months.

Under the current deal OPEC, Russia and other producers agreed to cut output by 1.8 million barrels per day (bpd) for six months from January 1. Many traders now expect those producers to cut output through next winter.

"Today's meeting is just informative, nothing major", an OPEC source said. But recent bullish trends are still going. 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.

"The focus is intensifying on what Opec will do next", John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, said by telephone. "People are really starting to struggle for barrels", Mr. Shelton said, though he cautioned that there are signs of rising production too.

While that's the stated goal of OPEC's deal with other exporters to remove a combined 1.8 million barrels a day from the market, Currie thinks the cartel has another aim in mind.

Jason Schenker, president of Prestige Economics LLC, explained the positive movement by noting that "Not many people will want to be bearish as the meeting approaches; there's sure to be a decision that will be created to boost prices". That drop "was a case of sentiment over substance", said BMI Research. Futures touched $50.25, the highest since April 21. The contract earlier rose to the highest since April 21 and is on track for a almost 4 percent climb this week, its second week of gains.

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