Oil turns positive as market awaits EIA data

Ivan Schwartz
May 20, 2017

The International Energy Agency (IEA) said on Tuesday that commercial oil inventories in industrialised countries rose by 24.1 million barrels in the first quarter of the year, a time when the OPEC-led production cut was already in place.

Brent crude was up 33 cents at $51.98 per barrel (bbl) by 6 a.m. CT (11 GMT).

Oil prices have gained support from the supply cut pact but high inventories and rising US production have acted as a brake on the recovery.

Meanwhile, gasoline inventories dropped by only 0.413 million against expectations for a draw of 0.731 million barrels while distillate stockpiles fell by 1.94 million barrels, compared to expectations of a 1 million decline.

Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce the output by 558,000 barrels per day starting from January 1, 2017 for six months, extendable for another six months.

The Russian Energy Ministry says extending the cuts through March 31, 2018, would show "producers' determination to ensure stability, predictability and incremental development of the market".

OPEC is increasingly expected to extend the current deal to cut production at its meeting next week amid growing support for a deal extension from OPEC nations such as Kuwait, Iraq, Oman and Venezuela.

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OPEC also raised its forecast for oil supply growth from non-members in 2017 but kept its outlook for global crude demand unchanged at 96.4 million bpd.

"The oil rally has paused and whether it can resume depends on today's EIA inventory report", said Ole Hansen, head of commodity strategy at Saxo Bank.

OPEC officials had made the case that supply cuts would reduce the global glut and boost crude prices.

"Low oil prices may bring satisfaction for some consuming countries in the short run, but in the long term as a result of reduced investment in new oil production, they could end up paying a much higher price for a barrel of oil", he said.

Shipping data in Thomson Reuters Eikon shows that United States oil exports to Asia have soared from just a handful of tankers per quarter throughout 2015 and 2016, to 10 tankers in the first quarter of this year, a figure that is expected to rise in the second quarter.

Adding to concerns of ongoing supply increases, a report said North Sea oil production, which has always been seen as in terminal decline, is expected to jump by a net 400,000 bpd, or about a fifth of total output, in the next two years as producers improve operational efficiency.

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