Oil prices climb on hopes output cuts will be extended
- Author: Zachary Reyes Jun 01, 2017,
Jun 01, 2017, 9:35
"The numbers beneath the surface were rather mixed, with gasoline stocks falling only slightly on weaker demand and sharply higher imports suggesting sufficient availability of crude oil internationally despite OPEC cuts", said Carsten Fritsch, oil analyst at Commerzbank AG in Frankfurt, Germany. A final decision is expected after the upcoming OPEC ordinary meeting scheduled in Vienna later this week, on May 25, which will be followed by a joint meeting between OPEC and participating non-OPEC countries. The US, a non-OPEC member, is now dictating the direction of the market.
The downward correction eroded gains from the previous session when prices rose on the back of a drawdown in USA crude inventories and a slight dip in American production.
United States distillate production rose by 86,000 bpd (barrels per day) to 5,042,000 bpd on May 5-12, 2017.
"We have not agreed on final scenarios", said one of the sources.
"This leaves OECD stocks 307 million barrels above their five-year average going into Q217".
A second source said a deeper cut in output was an option depending on estimated growth in supply from non-OPEC producers and USA shale oil.
In Canada, the number of oil rigs in operation increased by seven to 36, while the number of gas rigs slipped by two to 49.
"The fall in stockpiles undershot the expectation of a 2.36-million draw", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
The report said, looking at Q2, there is an implied stock draw of 0.7 mb/d if the market can assume OPEC's April production level of 31.8 mb/d is maintained, and nothing changes elsewhere in the balance. Back on February 24, the oil rig count in Canada stood at 206. Members of the Organization of the Petroleum Exporting Countries have stated their intentions to keep supply cuts going through next year. This however, would not be enough to keep oil prices buoyant given that the U.S. supply taps are open. With higher oil prices, the IPO is likely to perform better. While that announcement was mostly expected, oil prices had sold off ahead of the meeting but then rallied for three consecutive days for a gain of almost 14%, prior to a small retreat.