Higher US crude output should pressure oil prices

The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russian Federation have pledged to cut output by nearly 1.8 million barrels per day (bpd) during the first half of the year.

Brent and USA light crude futures contracts closed on Tuesday at their second lowest levels since November 29, the day before OPEC announced it would cut output in the first half of 2017.

The Energy Information Administration reported that USA commercial crude inventories fell by 5.2 million barrels to a total of 522.5 in the week through May 5. The decline in US crude oil inventories is likely due to the increase in gross inputs to refineries in April.

The latest EIA data recorded an inventory draw of 5.25 million barrels in the latest week.

Also supporting prices were comments from Algeria's energy minister that Algeria and Iraq favor extending global supply cuts when OPEC meets this month. The following month, 11 non-OPEC oil-producing countries pledged to cut an additional 558,000 barrels a day, reaching an overall reduction of 1.8 million.

The impact was immediately felt with a 19 cent rise on Brent futures LCOc1 after months of price rallies and declines.

In the United States, crude stockpiles posted their biggest weekly drawdown since December last week as imports dropped sharply, while inventories of refined products also fell.

In a monthly report, the Organization of the Petroleum Exporting Countries said outside producers would boost supply by 950,000 barrels per day (bpd) this year, up from 580,000 bpd expected previously.

However, its estimate on average oil prices in 2017 was cut down to $52.60 a barrel for Brent and $50.68 for WTI. At 522.5 million barrels, crude stocks were the lowest since February.

TOKYO: Oil futures rose in Asian trading on Wednesday after Reuters reported Saudi Arabia would cut supplies to the region as OPEC battles against rising USA output that is threatening to derail its attempts to end a sustained global glut in crude.

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".

Crude oil prices are struggling to move up.

Meanwhile, Brent crude oil, the global benchmark, is up 1.9% at $49.89 per barrel on Wednesday, and has lost 12.4% this year.

  • Zachary Reyes