Oil prices dip as supply remains ample despite output cuts

Oil prices dip as supply remains ample despite output cuts

Oil prices settled higher Thursday amid growing signs that key oil producers will adhere to production cut deal at next week's meeting of the Organization of the Petroleum Exporting Countries (OPEC).

Analysts said, speculators enlarged positions as OPEC members supported Saudi Arabian and Russian pledges to extend supply cuts, which mainly influenced crude prices at futures trade here.

West Texas Intermediate rose 28 cents to $49.35 per barrel, the highest climb since April 26, while Brent increased 30 cents to $52.51 per barrel. If the cuts are extended under the current arrangement, as suggested by Saudi Arabia's al-Falih at a press briefing in Beijing, Libya and Nigeria could effectively sabotage the efforts of the remaining 11 OPEC peers, in addition to endangering cohesion and compliance within the OPEC and non-OPEC blocs.

Domestic U.S. production, meanwhile, was 9.3 million barrels per day, a year-over-year increase of almost 6 percent. On Wednesday, oil prices were boosted by the EIA reporting a fresh draw in crude oil inventories for the week to May 12, at 1.8 million barrels.

OPEC may just decide to end the output-cut agreement altogether, he said. US producers are not party to any agreements capping production.

Saudi Arabia and nonOpec Russia have said they want an extension to output reductions of nearly 1.8-million barrels per day that were initially agreed to run in the first half of 2017. The premium usually indicates expectations of oversupply and hence shows growing doubts that OPEC will be able to eradicate the glut. "On the other, there are those who are focused on the real drawdowns that have started to occur in United States oil stocks over the past month or so", he said.

Rewinding to 2016, the oil market hit an inflection point in the summer as declining non-OPEC output and strong demand signalled a nascent market rebalancing.

This message was hammered home by Gene McGillian, VP of market research at Tradition Energy, who told Reuters that with increased production in Libya and Nigeria, as well as the U.S, sticking to current cuts might not be enough: "When you balance that cut with the increase in other areas it's probably a net-net cut of half a million a day, ".

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