Oil prices rise on expectation of OPEC supply cut extension

Oil prices

Oil prices are heading for a second week of gains as investors look to OPEC to extend their production cut agreement. Anadarko photo.

Oil prices up, but some investors concerned about stubborn glut

Oil prices rose on Friday and were heading for a second week of gains based on growing anticipation that OPEC and some non-cartel members will agree to extend their production cut into 2018.

Brent crude was up 77 cents to $53.28 by 9:28 a.m. EDT, its highest since April 21 and US benchmark crude was up 67 cents to $50.02/barrel.

Since the beginning of March, the Brent price has seesawed from over $56/barrel to less than $47/barrel as investors weighed OPEC cuts versus rising US output.

“The battle between bulls and bears is raging on oil,” Greg McKenna, chief market strategist at futures brokerage AxiTrader told Reuters.

“On the one hand, you have traders who worry about the efficacy of OPEC’s oil cuts on inventory levels. On the other, there are those who are focused on the real drawdowns that have started to occur in U.S. oil stocks over the past month or so,” he said.

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Saudi Arabia and Russia have agreed on the importance of extending the OPEC supply cuts which were to expire at the end of June, however, the cartel and other participants will consider extending the pact into the first quarter of next year.

OPEC and the other producers are expected to discuss extending the agreement next week when they meet in Vienna.

Rosneft, Russia’s largest producer said on Thursday that it would honour OPEC’s crude output agreements.

“One of the biggest difficulties facing the cartel, however, is that there is a lag between output cuts and inventory changes,” Reuters reported Bank of America Merrill Lynch said in a note.

The bank added OPEC-led reductions will take about nine months to start drawing down inventories, but increased US shale could minimize the effectiveness of the OPEC cuts.

Also, Saudi Arabia, OPEC’s largest producer, boosted exports by 275,000 barrels per day in March from February and its stockpiles also increased, according to official data released on Thursday.

“I think the cuts are enough to stabilize the market. I think they will likely bring some stock draws but I don’t think it will bring the stock draws that OPEC is hoping for,” Olivier Jakob, managing director at Petromatrix said in an interview with Reuters.

Posted in: Energy Financial

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