Oil prices rise as Saudi Arabia may cut exports to Asia

Ivan Schwartz
May 20, 2017

Stockpiles of gasoline, one of the products that crude is refined into unexpectedly fell by 150,000 barrels, against expectations for a build of 65,400 barrels.

"Soothing words from Saudi Arabia about extending the production cut deal, possibly into 2018, supported prices", said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

Despite an overall drop in OPEC crude production in April, Saudi Arabia's output increased, according to a monthly report from the cartel out Thursday.

The Organisation of the Petroleum Exporting Countries and non-Opec member countries will meet in Vienna on May 25 to discuss whether to continue output cuts of 1.8 million bpd in an effort to reduce a global crude glut and support prices. Saudi Aramco will reduce supplies to Asian customers by about 7 million barrels in June.

Brent crude jumped back above US$50 on the news and stayed there, buoyed by the ministers' comments, while WTI, which last Friday slipped below US$45 a barrel, regained some ground, settling yesterday at US$47.91 a barrel.

US crude production has risen by over 10 percent since mid-2016 to 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia.

Official numbers on weekly U.S. crude and oil product inventories from the United States government's Department of Energy were scheduled for release at 2:30pm GMT on Wednesday.

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International Brent crude futures were at $50.46 a barrel at 4.38am GMT on Thursday, up 24c, or 0.5%, from their last close. USA light crude CLc1 oil ended up $1.45 higher at $47.33 a barrel.

The news agency reported that state-owned Saudi Aramco will reduce oil supplies to its Asian customers by almost seven million barrels next month as it is likely to witness a surge in domestic power demand over summer.

Oil prices slipped to the pre-OPEC output cut level in early May on worries over brimming USA supplies. Atkinson said such a move will see the supply deficit become even bigger in the second half of the year.

Non-cartel producers led by Russian Federation partially matched the cuts.

Calling on U.S. to join in the rebalancing of global oil market, OPEC said "a large part of the excess supply overhang contained in floating storage has been reduced and the improvement in the world economy should help support oil demand".

Gasoline demand also perked, as US gasoline futures were up 2.4% after the report.

"U.S. crude oil production is now solidly above 9.3 million barrels per day with more to come, and refined product, especially for gasoline, is oddly weak", John Kilduff, partner at hedge fund Again Capital in NY, told Reuters.

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