Oil prices rise slightly on OPEC deal adherence

Oil prices up despite persistent crude glut

Oil prices rose in seesaw trading on Thursday as investors weighed the stubborn global crude glut against optimism that the OPEC supply cut deal will be extended into March of 2018.

Brent crude rose 30 cents to $52.51/barrel by 2 p.m. and US crude rose 23 cents as well, to $49.30/barrel.

OPEC members and other producers will meet next week in Vienna to discuss extending the production reduction pact that amounted to a cut of 1.8 million barrels per day (b/d).

So far, Russia, Saudi Arabia, Kuwait, Oman and Venezuela have publicly spoken in favour of extending the cuts.  Reuters reports Igor Sechin, chief executive of Rosneft, told reporters in Berlin on Thursday that his company will meet its agreements with OPEC on production cuts.

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On Wednesday, the US Energy Information Administration reported a 1.8 million barrel drawdown of US crude inventories and a small reduction in US output.  In the week ending May 12, US crude inventories were at 520.8 million barrels.

The EIA data also showed an increase in refining rates.

Michael Dei-Michei, head of research at JBC Energy in Vienna told Reuters the market should look at inventories of intermediate products including gas oils, diesel oil and other products.  Those stocks are not featured in the headline EIA numbers, but they are rising and could lead to higher finished product inventories.

“The effects of higher crude runs may not have fully filtered through yet, with stocks of unfinished oils having risen strongly over recent weeks, meaning that the headline categories should start to reflect some of this in the near future.”

Dei-Michei added “The effects of higher production could become a lot more visible in the next few weeks.”

As well, the amount of US crude being exported to northern Asia is undermining OPEC’s efforts to tighten the market.

According to shipping data in Thomson Reuters Eikon, US crude exports to Asia have increased from a handful of tankers per quarter throughout 2015 and 2016 to 10 tanker during the first quarter of 2017.  That figure is expected to increase.