Oil Edges Higher As OPEC Reaches Consensus On Cut Extension

Owen Stevens
May 16, 2017

Crude prices rose on May 10 after Reuters reported Saudi Arabia would cut supplies to the region as OPEC tries to counter rising US output that is threatening to derail its attempts to end a sustained global crude glut.

Brent crude rose by 3.7 per cent to $50.51 a barrel as West Texas crude gained 3.8 per cent to $47.64.

"We saw the biggest draw in (U.S.) inventories for the year last week with stockpiles down more than 5 million barrels, and it looks like OPEC's production cut is finally biting", said Greg McKenna, chief market strategist at brokerage AxiTrader.

Oil prices shot up over 3% overnight after data from the Energy Information Administration showed US crude stockpiles dropped 5.2 million barrels in the week ended May 5, far exceeding market expectations.

Supply from the 11 OPEC members with production targets under the accord - all except Libya and Nigeria - fell to 29.674 million bpd last month, according to figures from secondary sources that OPEC uses to monitor output.

The US Energy Information Administration stated that crude production is expected to rise by 9.31 million barrels per day in the US, a 440,000bpd increase from the previous expectation.

"I am still watching the US summer gasoline demand", said Kho, the president of Vitol Asia Pte.

Brent was 69 cents higher, or 1.4 percent, at $50.91 a barrel by 12:07 p.m. EDT (1607 GMT) after hitting a high of $51.16. At 522.5-million barrels, crude stocks were the lowest since February.

Stocks at the Cushing, Oklahoma, delivery hub for USA crude futures USOICC=ECI fell 438,000 barrels, EIA said.

"After a prolonged period of builds into record territory, USA crude inventories have finally started to decline", he said.

Oil prices extended their gains after a report showed United States crude stockpiles fell by the biggest margin since December and were down for the fifth straight week.

Essentially, what we are looking at is an overall drawdown in crude oil over the last couple of weeks, but it's just being converted to gasoline.

Now, OPEC and its allies are looking forward to prolong their agreement, which includes three largest producers Russia, Iraq and Iran, into the second half of the year.

Meanwhile, the benefits of OPEC's agreement to cut output have proved elusive.

Other reports by VgToday

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