Economy

Global oil rises on United States inventory draw

Global oil rises on United States inventory draw

The price of WTI crude Oil does not seem to be bothered by the headlines signaling political turmoil in the United States, but rather is favoring the outlook that OPEC is expected to extend the production curb another 9-months.

"Given that the market is pricing in a rollover [of the OPEC-led cuts], there is unlikely to be a significant short-term price boost" if that is announced next week, said BMI Research.

Both benchmark prices started the day in negative territory after data from the American Petroleum Institute estimated that US crude stocks had risen by 882,000 barrels.

The deal is likely to be extended to next year March after Saudi Arabia and Russian Federation voiced their support of the extension.

The meeting precedes a policy-setting gathering of OPEC and non-OPEC oil ministers on May 25 to decide whether to extend beyond June 30 their deal to reduce output.

North Sea oil shipments to Asia have also been at record highs this year, with 19 tankers delivering in Q1, and a similar amount expected to go to Asia in the second quarter.

U.S. production has risen 850,000 barrels per day (bpd) from its 2016 lows to 9.3 million bpd now, not far from the all-time record set in 2015.

U.S. West Texas Intermediate (WTI) crude futures were at $48.15, down 51 cents, or 1 percent.

Jason Schenker, president of Prestige Economics LLC, explained the positive movement by noting that "Not many people will want to be bearish as the meeting approaches; there's sure to be a decision that will be created to boost prices".

Though the deal proposed a cut of 1.8 million barrels, commodity analysts are of the view that this number could be increased.

However, the drawdown was smaller than expected, and many traders say there is still more oil in the system than the market can absorb.

OPEC wants oil for immediate delivery to trade at a premium to crude sold for future shipment because the current market structure - contango - benefits the cartel's competition.

USA companies that rely on expensive drilling methods have become more efficient, frustrating OPEC's two-year effort to end a crude glut by pumping at maximum capacity to wash out high-cost producers.

Extending the cuts further to 2018 is now very likely which will definitely help the prices go up in the near future.

Its exception was down to Iran's oil sector recovering from a period Global sanctions as it pushed back toward a level of about 4 million barrels a-day (b/d).

Analysts Michael Hsu and Zach Parham said they remain bullish on oil prices "but less so than earlier this year".


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