Oil Market Is Rebalancing Yet OPEC's Work Not Finished, IEA Says

19 May, 2017, 16:02 | Author: Leticia Walters

Russia's Energy Ministry plans no compensations to Russian companies due to a probable extension of the agreement on oil production cut, Minister Alexander Novak said Tuesday.

Energy ministers from the world's two top producers said that supply cuts should be prolonged for nine months, until March 2018.

An extension of the cuts at already agreed-upon volumes is needed to reach the goal of paring world inventories to their five-year average, Kuwait's Oil Minister Issam Almarzooq said Tuesday in an emailed statement.

The global benchmark for crude oil was up $1.25, of 2.5 percent on the day, at $52.10 a barrel.

The six-month accord, agreed to previous year, is up for review when OPEC and other exporters meet next week.

The move was partly matched by non-cartel producers led by Russian Federation.

As of 0653 GMT, brent crude futures were at US$52.08 (RM224.66) per barrel, up 26 cents, or 0.5 per cent, from their last close.

The U.S. rig count rose for the 17th week in a row to the highest level since August 2015 last week, implying that further gains in domestic production are ahead. Surging U.S. production has raised concern that the Organization of Petroleum Exporting Countries and its partners are failing to reduce an oversupply.

An OPEC source familiar with the market situation told Reuters earlier on Monday that oil inventories in floating storage have declined by one-third since the start of the year. Saudi Arabian production in April average 9.97 million barrels per day, nearly 1 percent below its quota under the multilateral deal.

Goldman's Jeff Currie says talk that OPEC could start defending its market share again to squeeze USA producers is the wrong way to look at the situation: "Shale and OPEC are taking on the global oil [producers] that are sitting at the top [of the cost curve]".

Goldman said that beyond the ongoing rise in USA oil production, which is up over 10 per cent since mid-2016 to 9.3 million bpd, output will increase by Opec members who were exempt from the cuts, or where supply disruptions had ended, including Libya and Nigeria.

"Extending the cuts until March 2018 would take account of the fact that demand in the first quarter of a year is lowest for seasonal reasons", said Commerzbank analyst Carsten Fritsch.

The oil production cut agreement was signed by all the oil producing countries to maintain its price in the market.

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