Oil prices rise as market awaits extended output cut

BMI Research analysts said in a note that a cut extension will mean supplies from the Middle East will remain "constrained", which then, in turn, further opens up strategic market opportunities for USA crude.

Oil prices have risen less than OPEC hoped for from last year's levels.

"OPEC agreeing to nine months without deeper cuts leaves prices at the mercy of inventories and USA production and demand", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Past forward curves 0#CL: show that US oil production rose at its fastest pace during times when prices were in backwardation (2011 to 2014).

"OPEC is meeting on 25 May with an extension of supply cuts at the top of its agenda".

The upshot is that the price of oil - and derived products like fuel - is unlikely to increase much in coming months.

Falih also said Saudi oil exports were set to decline steeply from June, thus helping to speed up market rebalancing.

In December 2016, OPEC and non-OPEC producers reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices.

The price for oil came under pressure from data released late Tuesday from the American Petroleum Institute on petroleum product inventories in the United States, the world's largest economy.

OPEC has for weeks been laying the groundwork to extend production cuts.

Analysts also said that the OPEC-led production cuts would support a further rise in US output.

Speaking ahead of a meeting of oil ministers from OPEC and other major producing countries in Vienna on Thursday, the Saudi energy minister added that the consensus is that deeper cuts are not needed now.

The JMMC was established following OPEC's 171st Ministerial Conference Decision of November 30, 2016, to monitor the joint 1.8 million barrels per day oil output cut.

He added that cuts could be extended further when OPEC and non-OPEC producers next meet in Vienna on November 30.

On Wednesday, July West Texas intermediate crude oil settled at $51.36, down $0.11 or -0.21% and internationally-favored August Brent crude oil closed the session at $54.24, down $0.17 or -0.31%.

Al-Falih said it was important for shale oil producers, like those in the USA, to pace their output. USA light crude CLc1 was 40 cents higher at $51.76.

"We've already had a nice rally", Brian Kessens, a managing director and portfolio manager at Tortoise Capital Advisors LLC in Leawood, Kansas, who helps manage US$17.1 billion in energy assets, said by telephone.

"The extension through to the first quarter of 2018 makes it clear to the oil market that OPEC intends to continue to support oil prices at the expense of market share, at for the time being", she added.

A preliminary deal among OPEC nations to extend the supply curbs by nine months would be put to representatives of non-OPEC producers later Thursday, an OPEC source said.

  • Zachary Reyes