Oil rises to month-high with output cut extension expected
- Author: Zachary Reyes May 23, 2017,
May 23, 2017, 21:53
Prolonging the cuts will help producers reach their goal of trimming stockpiles in developed economies to the five-year average, Saudi Arabia's Energy Minister Khalid Al-Falih said Sunday. He highlighted the importance of India - OPEC engagement and discussed on the effects of the production cut of 1.8 mbpd by OPEC and non-OPEC countries on the global oil market volatility.
Falling stockpiles this month in the USA have some convinced that cuts from the group of global exporters are impacting supply, and crude prices are up 11% since they hit a six-month low May 4.
Brent crude was up 50 cents at $54.11 a barrel, with US West Texas Intermediate crude also up 50 cents at $50.83, CNBC reported. "I do not expect any objection to that trend", al-Falih added.
The proposal comes just days before a meeting of OPEC officials in Vienna in which the cartel is expected to agree an extension of their current production cuts which, along with their allies, is taking around 1.8 million barrels per day from global crude markets. India has been in touch with oil suppliers it had not traditionally used and said Indian refiners were "working out details of the strategy to buy cargos, including from the United States of America and Canada, which happens to be becoming very competitive."We know shale used to be competitive only at prices above $60 (per barrel)".
There is near-unanimity among watchers that the deal will be extended, with the only real questions being for how long and whether cuts are more severe.
Russian production tends to be flat in the first half of the year but normally rises in the second half of the year, according to Henderson, adding that companies in Russia are keen to increase production, but they agreed to the cut.
But as far as Helima Croft, commodities strategist at RBC Capital Markets, is concerned, getting Iraq to follow through on its agreement to extend its cuts under OPEC "is going to be interesting".
"There is an initial willingness for one or two countries from the small producers to join", he said.
The U.S. strategic petroleum reserves (SPR) are the world's biggest, standing at around 688 million barrels, a week's worth of global oil demand. "I am not too sure", he said in Houston.
Iraq's peers are tolerating its breaches mostly because Saudi Arabia has slashed 35 percent, or 171,000 barrels a day, more than it needs to, according to OPEC data.
"A lot of market participants have been a bit underwhelmed by the impact of the cut", Martijn Rats, an oil analyst at Morgan Stanley, said in an interview in Dubai. As a result, the group met 96 percent of its targeted cut in the first quarter, an exceptional result given that compliance with previous curbs never exceeded 80 percent, the International Energy Agency reported.