Published: Fri, May 12, 2017
Markets | By Erika Turner

Oil up on falling United States inventories, Saudi cuts to Asia

Oil up on falling United States inventories, Saudi cuts to Asia

Reuters- Oil prices rose on Wednesday after a larger-than-expected fall in USA crude inventories but failed to recoup last week's losses due to concerns about rising output from the United States, Libya and Nigeria.

Oil prices pared gains on May 11 after the report was released to trade below $51/bbl, below the $60 level that top OPEC producer Saudi Arabia would like to see.

A cornerstone of the Saudi promise to rebalance the market would be to extend, potentially into 2018, a pledge led by the Petroleum Exporting Countries (OPEC) and other producers including Russian Federation to cut output by nearly 1.8 million barrels per day (bpd) during the first half of the year.

OPEC's efforts to tighten the market and prop up prices have been undermined by a relentless rise in USA production, especially from shale oil drillers.

High U.S. gasoline stocks have fed some concern about demand in the United States, where consumer spending expectations hit a three-year low last month and vehicle sales have fallen year-on-year for four months in a row. Aramco had previously maintained supplies to important Asian customers.

While U.S. oil inventories fell, the country's crude oil production continued to rise, jumping above 9.3 million bpd last week, in what is now a more than 10 percent increase since its mid-2016 trough.

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Opec and industry sources said there had been discussions about extending curbs until the end of the first quarter 2018, when crude demand is seasonally at its weakest.

Kuwait's oil minister said today he believes that oil producers will extend their production cuts for another six months at their meeting later this month. US light crude oil CLc1 was up 35 cents at $47.68.

OPEC is curbing its output by about 1.2 million barrels per day (bbl/d) from January 1 for six months, the first reduction in eight years, to clear excess supply.

World oil demand growth for 2017 was left unchanged at 1.27 million barrels per day with non-OECD countries leading the growth. For the week to May 2, investors cut bullish bets on Brent to the lowest level since late November, while hedge funds and money mangers also cut gross long positions in US crude futures to the lowest since early November.

Still, the notification of cuts in June allocations signals added urgency among Opec members as evidence mounts that the output reduction has so far failed to rein in a global crude glut in crude.

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