Oil Price climbs on expectations for deeper output cut

On May 15, Russian and Saudi energy ministers said in a joint statement that Moscow and Riyadh meant to propose a 9-month extension of the Vienna agreement on oil output cuts under the existing conditions.

"We believe that continuation with the same level of cuts, plus eventually adding one or two small producers, if they wish to join, will be more than adequate to bring the five-year balance to where they need to be by the end of the first quarter 2018".

A release of US strategic reserves would jolt oil markets, where the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russian Federation, have pledged to cut output by 1.8 million barrels per day (bpd) in order to tighten the market.

OPEC, Russia and other producers agreed previous year to reduce output by 1.8 million barrel per day for six months starting from January 1. The global benchmark crude traded at a premium of $2.93 to July WTI. Iraq, OPEC's second largest and fastest growing oil producer, has so far voiced support only for a six-month extension.

Iraq's oil minister promised to meet the nation's full commitment in May, Saudi Minister Al-Falih said in an interview on Arabiya television on Tuesday. Thursday's meeting is expected to yield an extension to the deal of up to nine months.

Iraq and Iran posed the main obstacles to OPEC in reaching a deal for its last output cutting decision in December.

The country's oil minister Jabar Ali al-Luaibi had previously said that Iraq would support a six-month extension.

While OPEC has had some success reducing the oil glut, somewhat higher prices are helping its biggest foe: the shale industry.

Investors will start focusing late in the trading day on expected supply and demand metrics in the United States.

"U.S. gasoline stocks have been a source of concern lately for market bulls as inventories have climbed the last five weeks by 4.5 million barrels, versus an average decline of 4.1 million barrels from 2012-16", Oil Futures Editor Geoffrey Craig said in an emailed report.

"It's not huge, but it won't help Saudi efforts", he said.

"Coming to the India-OPEC dialogue, it is crucial for us as we import about 86% of our crude, 70% of natural gas, 95% of cooking gas from the OPEC countries", he said.

The size of the extra supply cut being mulled by the European Central Bank was not immediately available.

He added that in today's oversupplied market, it was important for producers to understand the perspective of consumers and the demand centres and the changes that have taken place in these demand centres.

  • Zachary Reyes