Saudi Aramco cuts to Asia sees oil prices rally
- Author: Zachary Reyes May 18, 2017,
May 18, 2017, 0:50
Oil prices rose more than 3.5 percent on Wednesday, bolstered by the biggest one-week drop in USA inventories so far this year, and after Iraq and Algeria joined Saudi Arabia in supporting an extension to OPEC supply cuts.
Both Brent and USA light crude futures contracts closed on Tuesday at their second lowest levels since November 29, the day before Opec agreed to cut production during the first half of 2017.
Oil was also supported by a larger than expected fall in US crude inventories last week, down 5.8 million barrels compared with analysts' expectations for a 1.8 million barrels decline, according to industry group the American Petroleum Institute.
Crude prices had hovered near five-months lows earlier this week, but surged yesterday after the Energy Information Administration released data showing a 5.2 million barrel drop in USA crude stockpiles for the week ended May 5, far exceeding market expectations.
Today, OPEC released data showing that production fell by 18,000 barrels a day April, even as Saudi Arabia raised output.
USA crude production has risen by over 10 percent since mid-2016 to 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia.
Seven million barrels is roughly two days of oil imports into Japan, the world's fourth-biggest importer. U.S. light crude oil was 45 cents higher at $46.33 a barrel.
Oil prices extended their gains after a report showed U.S. crude stockpiles fell by the biggest margin since December and were down for the fifth straight week. Unless we see both of them fall in tandem, it is unlikely that any rally in crude will be sustained.
Global benchmark Brent crude was up 68 cents at $49.41 a barrel by 1327 GMT.
Elsewhere, investors continued to monitor comments from energy ministers, after Saudi oil chief Khalid Al-Falih said Monday, that he was "confident the agreement will be extended into the second half of year and possibly beyond".
Prices surged after that deal, but have come under pressure in recent weeks as US production has climbed, undermining OPEC-led efforts to reduce a global crude glut.
The global oil market is rebalancing very fast, even after last week's selloff, said Jeffrey Currie, who is a head of commodities research at Goldman Sachs Group Inc.
Meanwhile, the benefits of OPEC's agreement to cut output have proved elusive.