Oil steady on expected OPEC cut extension, drop in US inventories
- Author: Darren Santiago May 13, 2017,
May 13, 2017, 0:51
Oil prices traded largely flat on Friday, supported by expectations of an extended Opec-led production cut and falling U.S. crude inventories but capped by concerns over global oversupply.
By the time OPEC meets in Vienna on May 25, US output will be approaching the 9.5 million barrels a day mark - higher than in November 2014 when OPEC started a two-year price war.
WTI Crude Oil (Light Sweet) price at NYMEХ Stock Exchange up by 0.78% to $47.91 per barrel.
"We saw the biggest draw in (US) inventories for the year last week with stockpiles down more than five million barrels, and it looks like OPEC's production cut is finally biting", said Greg McKenna, chief market strategist at brokerage AxiTrader.
Last November, the Organization of the Petroleum Exporting (OPEC) countries agreed to reduce oil output by 1.2 million barrels per day for the first six months of 2017, with a daily cartel-wide cap standing at 32.5 million barrels.
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OPEC claims raising global oil prices will "require the collective efforts of all oil producers" and should be done "not only for the benefit of the individual countries, but also for the general prosperity of the world economy". Oil prices have recovered somewhat this week as OPEC and Russian officials have signaled a renewal of the production deal is likely.
OPEC said that one producer in particular is to blame: The U.S., where shale producers have continued to ramp up their drilling despite lower crude prices.
"OPEC/NOPEC have no choice but to extend the production cut deal just to maintain the present status quo against the increase in (U.S.) production and returning (OPEC) members, Libya and Nigeria", said Jeffrey Halley, senior market analyst at futures brokerage OANDA.
Timing is everything, and there is a lot of noise surrounding near-term oil prices. USA drillers have dramatically reduced their hedging activity, a move that could portend a break in the production gains that have upended global crude prices. "We are short on products and we do not export crude", he said. Apache Corp. and Anadarko Petroleum Corp., two of the most active hedgers previous year, hadn't added significant new contracts as of the end of the quarter, for example. But the OPEC report confirmed the cartel´s concern about a recovery in U.S. oil output.
That flood of cash, along with the damage already done to conventional rivals, should convince Saudi Arabia and three Persian Gulf allies, who collectively have made about two-thirds of OPEC's production cuts, to change their strategy. Reports from the Energy Information Administration showed that US stockpiles were down almost 5.2 million barrels, a huge difference from the 1.8 million barrels expected.