Oil prices edge up on possible OPEC extension, US drawdown

Oil prices up in seesaw trading

Oil prices rose slightly in trading on Tuesday as investors considered an extension of OPEC supply cuts and another drop in US crude stocks against a proposal from the White House to sell half of America’s petroleum reserves.

As of 11:49 a.m., Brent crude was up 9 cents to $53.96/barrel and US light crude was up 12 cents to $51.25.

“It continues to be a momentum driven trade ahead of OPEC’s meeting,” Tony Headrick, energy market analyst at CHS Hedging told Reuters. “We continue to build in what the market expects is an extension of cuts.”

On Thursday, OPEC members will meet in Vienna to determine if the agreement to cut 1.8 million barrels per day of crude production will be extended beyond June, perhaps to the first quarter of next year.

So far, Saudi Arabia, Russia, Oman and Kuwait have strongly supported extending the deal.

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According to a Reuters report, on Tuesday, OPEC delegates said the group and non-OPEC members participating in the pact will likely agree to prolonging the deal for another nine months.  The cartel will try this week to figure out how to tackle the global oversupply of crude.

Data released on US crude inventories from the American Petroleum Institute on Tuesday and the US Energy Information Administration on Wednesday is expected to show a reduction in stocks for a seventh straight week.  Analysts are looking for a drop of 2.7 million barrels in the week ending May 19.

Also on Tuesday, the White House announced it will look at selling off half of the country’s 688 million-barrel crude stockpile from 2018 to 2027 to raise $16.5 billion as the Trump administration looks for ways to balance the budget.

Carsten Fritsch, commodity analyst at Commerzbank told Reuters that “Congress needs to agree to this which is rather uncertain.”

According to James Williams, president of energy consulting firm WTRG Economics in London, Arkansas, the White House proposal would be part of a ten year plan that would mean sales would average less than 100,000 barrels per day (b/d).

Williams adds that apart from one time spike in supply following the roll out, “the impact on prices would be negligible.”  He added “This is a little over one tenth of one percent of global daily consumption – that does not move markets.”