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

Oil takes heart from decline in USA stocks

Higher crude output from the US should pressure global oil prices through the end of 2018, the USA government said May 9, ahead of a meeting later this month at which OPEC and non-member producers will discuss extending supply cuts.

But a downbeat report from Opec tempered early gains as the producer group said higher-than-expected production from its competitors would reduce demand for its crude this year.

Iraq and Algeria said they were in favor of extending that deal, which cut output by nearly 1.8 million barrels per day (bpd) during the first half of the year.

Despite an overall drop in OPEC crude production in April, Saudi Arabia's output increased, according to a monthly report from the cartel out Thursday.

Oil prices rose on Thursday, and Brent was firmly back over $50 per barrel, as a fall in US crude inventories and a more severe than expected cut in Saudi supplies to Asia tightened the market.

Saudi Aramco has told Asian buyers it is curtailing supplies for June to meet its commitments for the output cut, one of the sources at a refiner in South Korea said.

Benchmark Brent crude settled up 24 cents, or 0.5 percent, at $49.34 a barrel.

US oil production has risen more than 10 percent since mid-2016 to 9.3 million bpd, the highest since August 2015 and close to the levels of top producers Russian Federation and Saudi Arabia.

Consequently, the EIA has revised the Brent and WTI prices down for 2017, to $52.6 and $50.68 per barrel respectively.

The price of Brent crude is now trading at $49.12 a barrel while Western Texas Intermediate is at $46.32. WTI crude oil averaged $43.33 a barrel in 2016 and is forecast to rise to an average of $50.68 in 2017, down $1.56 a barrel compared with last month's estimate for 2017.

The amount is said to be equal two days' oil imports to Japan, Asia's second biggest economy, and marks another break from Saudi Arabia's usual policy of maintaining customers by keeping supplies steady. "We are discussing a number of scenarios and believe extension for a longer period will help speed up market rebalancing" Minister Alexander Novak said in a statement.

Ministers from some members of the Organization of Petroleum Exporting Countries have also discussed the possibility of deepening the supply curbs, said four delegates, who asked not to be identified because the talks were private.

He said he expected global oil demand to grow at a rate close to past year.

"But oil demand growth this year is underwhelming, in part explaining why crude oil prices and refining margins have sold off sharply recently", the bank said in a note to clients.

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