Oil hits one-month high near $55 on tighter supplies

07 April, 2017, 05:06 | Author: Leticia Walters
  • Pic Reuters

Crude prices staged a three-day rally last week amid expectations members of the Organisation of the Petroleum Exporting Countries (OPEC) and non-members such as Russian Federation would extend production cuts beyond June.

Investors remained hopeful that OPEC and non-OPEC members would extend the current deal to cut production beyond June, after comments from several ministers from oil producing nations supported the idea of an extension. Prices gained US$2.63 last week to settle at US$50.60.

Record inventories accumulated since 2014 have been a drag on crude prices even as OPEC and some non-member producers curbed output. But due to its commitment to support oil prices, it has chose to temporarily suspended its plan to increase production but will continue to add capacity.

Crude oil production at the Sharara field in western Libya - the country's biggest - has resumed, an anonymous source told Reuters, and the force majeure that the National Oil Corporation had placed on the field could be lifted today.

"It seems that the stoppages in Libya appear to be shorter in nature, less protracted", Harry Tchilinguirian, head of commodity markets strategy at BNP Paribas SA in London, said by telephone. High gasoline consumption over the long term should have a positive impact on gasoline and crude oil prices. For example, the late 2014 OPEC meeting, which surprised the market with a policy u-turn, caused the correlation to turn negative as crude oil prices collapsed while the risk-reversals soared as producers scrambled to hedge themselves. OPEC is committed to draining off swollen inventories before the group meets on May 25 in VIenna.

The U.S. West Texas Intermediate crude May contract fell 26 cents, or around 0.5%, to $49.98 a barrel by 4:05AM ET (08:05GMT), after falling to an overnight low of $49.93.

Canadian crude shipments to the US are poised to shrink just as the effects of OPEC-led output cuts are being felt in the Caribbean. Total volume traded was about 7% above the 100-day average. The global benchmark crude ended the session at a $2.66 premium to June WTI.

Iraq plans to increase crude production capacity to 5 million barrels a day by the end of this year.

Brazil overtook Venezuela as the top South American crude supplier to China in the first two months of this year due to its favored medium-heavy quality grades, while China became the number three destination for United States crude exports in 2016. Among the 10 members bound by output caps, compliance weakened to 89 percent of pledged reductions from 104 percent.

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