Oil rises on expectations of extended, possibly deeper, output cut
Both benchmarks Brent and WTI have climbed more than 10% from lows hit earlier this month.business Updated: May 22, 2017 15:16 IST
Oil rose on Monday, bolstered by confidence that top exporters will this week agree to extend supply curbs, with suggestions that the cuts could even be deepened.
Brent crude was up 50 cents at $54.11 a barrel at 0836 GMT, with U.S. light crude also up 50 cents at $50.83.
Both benchmarks have climbed more than 10% from lows hit earlier this month.
Prices have risen on expectations that a pledge by the Organization of the Petroleum Exporting Countries (OPEC) and other producers, including Russia, to cut supplies by 1.8 million barrels per day (bpd) will be extended by six to nine months, instead of covering only the first half of this year.
“The decision (to extend cuts) seems to be almost a done deal,” said Bjarne Schieldrop, chief commodities analyst at SEB Markets. “There seems to be a very high harmony in the group.”
The option of deepening the cuts was also being discussed ahead of a meeting of OPEC and other producers in Vienna on May 25, sources said.
“Oil soared ... as rumours swirled that OPEC... was considering recommending the double whammy of a production cut extension and deeper cuts ahead of this Thursday’s meeting,” said Jeffrey Halley, analyst at futures brokerage OANDA in Singapore.
Deeper cuts are required to balance the market, according to some analysts who point to a slight rise in OPEC exports this year.
The U.S. Energy Information Administration (EIA) said it expects OPEC net oil export revenues to rise in 2017, partly because of “slightly higher” OPEC output.
But deeper cuts might serve to stimulate U.S. shale production, said Schieldrop at SEB Markets.
“If you cut production, it’s no free lunch. You get something in the short term, but you get a backflip in the medium term, which is more production in 2018 and 2019,” Schieldrop said, referring particularly to U.S. shale oil output.
Goldman Sachs says that the U.S. rig count for new oil production has jumped by 404 since May last year, representing a rise of 128%.
U.S. oil production has already climbed by 10%, or almost 900,000 bpd, since mid-2016 to 9.3 million bpd.
(Additional reporting by Henning Gloystein; Editing by David Goodman)