Oil prices rise on expectation of output cut extension

May 08, 2017, 16:05

Brent contracts for the same month, the global benchmark, were seen 0.70% higher at $49.44 per barrel.

Saudi Energy Minister Khalid al-Falih said on Monday he was confident that OPEC and non-OPEC producers would extend cuts into the second half of the year and "possibly beyond".

Oil prices rose on Monday as talk of further supply cuts by major OPEC exporters outweighed the prospect of higher USA production as a drilling boom spreads across North America.

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On the NYME, the May delivery for West Texas Intermediate dropped by 24 cents to reach $52.41 per barrel. "It's never possible to call a bottom, but I suspect this is a great buying opportunity" before a big jump in prices by the end of the year, he said.

OPEC and other major producers including Russian Federation agreed to cut production by 1.8 million barrels a day in the first half of the year in an attempt to drain large global stocks. Surging U.S. production has raised concern OPEC and partners are failing to reduce an oversupply.

'Second, OPEC is likely to extend its cuts by at least three months at its meeting at the end of the month, ' said the analysis.

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The price of crude oil fell following the release of an industry report which showed that the decrease in inventory in the United States was lower than had been anticipated. This is the first time the Saudi minister has suggested curbs could be extended beyond 2017. OPEC's curbs drove oil above $55 at the start of the year, encouraging USA producers to ramp up drilling.

If OPEC decides to roll over its current agreement for a further six months without substantial changes when ministers meet on May 25, the decision may not boost prices much, though it could stop them weakening further.

As OPEC and its allies curbed supply, production in the US, which is not part of the agreement, has risen to the highest level since August 2015 as drillers pump more from shale fields.

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The fall in oil prices was, however, given some support by a report indicating that there was a decline in output in Saudi Arabia. "OPEC members have no choice but to talk up prices by signalling an extension to the production cuts agreement".

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