Published: Sat, May 13, 2017
Economy | By Melissa Porter

Saudi Arabia may extend oil output cuts beyond 2017

"Lower 48 (all states excluding Alaska and Hawaii) oil production is set to expand by an additional 390,000 bpd from May 2017 to December 2017 assuming a WTI price of $50 per barrel".

Prices surged after that deal, but have come under pressure in recent weeks as USA production has climbed, undermining OPEC-led efforts to balance supply with demand.

In its monthly oil market report (MOMR), OPEC said the USA oil and gas companies have already stepped up activities in 2017 as they start to increase their spending amid a recovery in oil prices. The twelve member states will be joined by Russian Federation, but USA production remains a concern. API had reported a build in US gasoline stockpiles on Tuesday.

In recent market action, light, sweet crude futures for delivery in June climbed 57 cents, or 1.2%, to $47.90 a barrel on the New York Mercantile Exchange. New projects are also starting up in Canada and Mexico which together have added a further 430,000 barrels a day to the market. Economists were anticipating a drop of 2 million barrels, according to Bloomberg.

The Organisation of the Petroleum Exporting Countries (Opec), of which Saudi Arabia is the de-facto leader, and other producers including Russian Federation pledged to cut output by 1.8 million barrels per day (bpd) in the first half of the year to lift oil prices.

Weekly U.S. data on crude production and inventories, plus monthly reports on supply and demand from the Organization of the Petroleum Exporting Countries and the U.S. Energy Information Administration this week, should provide a detailed picture of how quickly global crude inventories are falling.

Stocks at the Cushing, Oklahoma, delivery hub for USA crude futures USOICC=ECI fell 438,000 barrels, EIA said.

The EIA crude report showed a big 5,247-million-barrel drop. "An extension of the supply deal beyond June looks likely but its effectiveness will remain questioned". According to Reuters, this is part of OPEC's agreement to reduce production and as it trims exports to meet rising domestic demand for power during the summer.

While US oil inventories fell, the country's crude oil production continued to rise, jumping above 9.3-million barrels a day last week, in what is now a more than 10% increase since its mid-2016 trough.

"The overhang is still very big and probably will be harder to decrease because of the resumed production from Libya and Nigeria", said Gao Jian, an energy analyst at SCI International. "If that is the case, then global inventories should fall about 1 million barrels a day in the second half of the year".

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