Oil rises on potential extension of output cuts

Crude oil futures slid for a second session on Thursday, moving away from a one-month high touched in the last session as rising USA inventories stoked worries about global oversupply.

The government's Energy Information Administration (EIA) said on Tuesday that U.S. 2018 crude output would rise to 9.9-million barrels per day, from 9.22-million barrels per day in 2017. The report also showed stockpiles at the USA crude hub at Cushing, Oklahoma, rose 276,000 barrels in the week ended April 7th.

US crude inventories hit a record 535.5 million barrels this month.

World oil production fell in March thanks to a deal to cut output, OPEC said Wednesday, but the cartel's efforts to fight a global glut are threatened by American firms pumping oil with gusto.

OPEC reduced its output to around 1.2 million barrels per day from the beginning of January and for six months - the first curb in eight years - to get rid of excess supply.

Global demand for oil is finally close to outstripping supply after almost three years of surplus production, despite growth in the overhang of unused crude, the International Energy Agency said on Thursday.

Saudi Arabia, de-facto leader of the Organization of the Petroleum Exporting Countries, has told other producers that it wants to extend the coordinated production cut beyond the first half of the year, the Wall Street Journal reported. However, oil prices managed to continue trading above $55.

Despite this output-cut initiative, the oil market remained largely oversupplied due to rising USA production and stockpiles.

To comply with the deal, Saudi Arabia has cut production of medium-heavy oil to keep its overall output lower.

As demand is expected to increase by 340,000bpd next year, the increase in production will swell USA inventory.

"With the pick-up in drilling activity, as well as increasing cashflows in the tight oil industry, USA tight crude output is expected to rise quickly and increase 335,000 bpd for the overall of 2017", OPEC said, using another term for shale.

During the period, United States crude oil imports averaged 7.9 million barrels per day, up by 28,000 barrels per day from the previous week.

Also, the 60- to 70-day lag between exports leaving the Arabian Gulf and arriving in major markets means the extent of OPEC supply cuts has yet to bite.

The revised projections for 2017 reflect improved momentum in global economic growth, OPEC said.

  • Wendy Palmer