Oil rises on Libya disruption and likely Opec output cut extension

Author

31 March, 2017

USA crude stockpiles rose by 1.91 MMbbl last week, the API was said to report Tuesday; EIA data Wednesday is forecast to show inventories increased by 2 MMbbl.

In total, they agreed to reduce output by 1.8 million barrels per day to 32.5 million for the first six months of the year, but so far the move has had little impact on inventory levels.

Light, sweet crude for May delivery gained 93 cents, or 1.9%, to $49.30 a barrel on the New York Mercantile Exchange, trading at the highest level since March 21.

This wouldn't explain how US inventories kept on growing before maintenance season, however, so it's more likely than not that Gulf producers are trying their best to arrest the price slide, and the situation in Libya is helping.

Meanwhile, Nigeria's crude oil exports are set to rise to 1.66 million bpd in May, according to a loading programme compiled by Reuters on Tuesday.

Crude recovered overnight after data from the American Petroleum Institute reported increases just below the 2m barrels analysts expected while Libyan supplies were disrupted due to conflict in the country.

Oil prices closed at a three-week high on Wednesday, boosted by signs of strong demand for crude products and renewed commitments by major oil producers to rein in production.

The impact of this production curb was largely ineffective due to rising U.S. production during the same time.

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The higher prices came despite US crude stocks rising by 1.9 million barrels to 535.5 million barrels.

USA shale oil production using fracking technology has turned the world's largest oil consumer into an exporter of crude and products, while Canada is developing its vast oil sands deposits and Brazil is working on huge offshore fields.

Iranian Oil Minister Bijan Zanganeh said on Tuesday that the agreement between OPEC and other producers led by Russian Federation to cut output by 1.8 million bpd in the first half of 2017 was likely to be extended.

OPEC, along with other producers including Russian Federation, aims to cut output by nearly 1.8 million bpd during the first half of the year.

The 300,000-bpd reduction that Russian Federation agreed to represents 2.7 percent of its October output, which exceeded 11 million bpd. Our base case assumption includes an extension of the OPEC cuts beyond June 30, albeit with weaker compliance in H2 2017.

Investors are waiting to see if OPEC decides to extend its production curbs into the second half of the year and whether adherence to the deal remains so high.

Other oil exporters outside OPEC, including Russian Federation, have also gradually reined in production.


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