Oil Gains After Saudi Arabia Backs Deal to Extend Global Supply Cuts
Source: Dow Jones News
By Neanda Salvaterra and Jenny W. Hsu
Oil prices gained Wednesday after Saudi Arabia, the world's top exporter of crude, told major producers that it favors extending a deal to curtail the global supply.
Saudi Arabia has told the Organization of the Petroleum Exporting Countries it wants to extend the agreement to cut crude-oil production for six more months when the group meets in Vienna on May 25, according to people familiar with the matter.
Last year OPEC and external producers including Russia committed to eliminate about 1.8 million barrels of oil a day in a bid to rebalance the oil market and raise petroleum prices. The kingdom has been shouldering the brunt of the oil cartel's cuts.
Brent crude, the global oil benchmark, rose 0.64% to $56.59 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.59% at $54.11 a barrel.
"Obviously Saudi Arabia supporting an extension of the OPEC deal...provides support for the market," said Amrita Sen, chief oil analyst at Energy Aspects.
Meanwhile, there has been talk among traders and analysts that the group's compliance level has exceeded 100% for March. Official readings will be included in OPEC's monthly oil report due later in the day.
Market watchers have long maintained that producers need to extend their production cut if they hope to make a dent in the global inventories.
However the coalition of producers that are willing to extend the cuts may be fraying at the edges, say analysts. Earlier, Russia's Energy Minister Alexander Novak announced that he planned to talk to Russian oil companies about an extension, but analysts are skeptical that Moscow will follow through.
"We still believe that it is very unlikely that Russia will sign up to any cuts beyond the middle of the year," said Commerzbank analysts in recent report.
Moreover, higher prices could put the market at risk of another glut, because higher prices could incentivize U.S. shale producers to drill for more oil.
In its latest short-term outlook report, the U.S. Energy Information Administration said U.S. crude oil production rose 9.1 million barrels a day in March, the highest level in a year. Production will likely grow by 300,000 a barrels a day this year and another 700,000 barrels a day in 2018, to an average of 9.9 million barrels a day.
Despite the gloomy data, oil investors are holding out hope for short-term good news about a decline in U.S. stocks.
On Tuesday, the American Petroleum Institute, an industry group, forecast a 1.3 million-barrel fall in U.S. crude supplies, a 3.7-million-barrel decrease in gasoline stocks and a 1.6-million-barrel fall in distillate inventories, for the week ended April 7.
Investors are looking ahead for further official data to be released by the U.S. government later on Wednesday.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 0.48% to $1.77 a gallon. ICE gas oil changed hands at $502.75 a metric ton, up $8.25 from the previous settlement.
Write to Neanda Salvaterra at neanda.salvaterra@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com
(END) Dow Jones Newswires
April 12, 2017 07:20 ET (11:20 GMT)
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