Oil prices up 1 per cent
Oil prices were up about 1 per cent in trading on Thursday after the US Energy Information Administration reported a significant drawdown of crude stocks, which helped calm investor skepticism concerning the efficacy of the OPEC-led supply cut agreement.
According to the EIA, US crude inventories fell by 6.4 million barrels in the week ending May 26 and gasoline stocks also fell significantly prior to the Memorial Day long weekend.
“It’s what the market needs to get a little more excited about prices,” Scott Shelton, energy specialist at ICAP in Durham, North Carolina told Reuters.
US crude futures rose 58 cents to $48.90/barrel by 12:45 p.m. and Brent was up 41 cents to $51.17/barrel.
The drop in crude stocks was over 4.4 million barrels higher than analysts had anticipated, but was smaller than the 8.7 million barrel slide the American Petroleum Institute had expected.
The bullish US inventory data proved to be relief for investors after a week of doubt following the OPEC meeting in Vienna last week and data showing increased OPEC production in May.
Cartel members Nigeria and Libya both increased their output, offsetting improved compliance with the OPEC supply cut pact by other participants. The two African countries had been exempted from the deal because unrest had significantly impacted their production.
Last week, OPEC discussed increasing its 1.8 million barrel per day (b/d) production cut by 1-1.5 per cent, but decided to keep the cuts at current levels. Reuters sources say the reduction could be revisited should inventories remain high and continue to bog down prices.
“There are signs that the 1.8 million barrel cut is not really what the market is feeling because of rising production in the U.S., Libya, Nigeria and even the North Sea,” Gene McGillian, manager of market research at Tradition Energy told Reuters.
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Russia’s deputy energy minister told Reuters that his country could boost their production to 11.07 million b/d and US production is also on the rise. The EIA reports that last week, output from US oilfields hit 9.34 million b/d, the highest since August, 2015.
“The worry is that you have rising output in the U.S. and that’s going to offset cuts,” McGillian.
