Oil trades near five-month lows despite Saudi assurances on cuts

Violet Tucker
May 14, 2017

Oil prices fell by as much as a 3 per cent on Friday, after prices crashed to five-month lows in the previous session, as concerns about global oversupply wiped out all gains since producers moved to cut output in November.

These large drops put crude back to levels last seen before the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russian Federation said they would cut output by nearly 1.8 million barrels per day (bpd) during the first half of the year in a bid to tighten the market and prop up prices.

At the time of publishing, global benchmark Brent crude was trading 0.72 per cent higher at $48.73 a barrel, while West Texas Intermediate (WTI) prices were 0.44 per cent higher at $45.72 a barrel.

But by 10:30am EST, oil prices began to lift, with WTI trading up 1.43 percent on the day at $46.17 and Brent Crude trading up 1.51 percent on the day at $49.11-still below that important $50 threshold.

OPEC along with Russian Federation and other non-OPEC nations agreed to cut output 1.8 million barrels per day (bpd) in the first half of 2017.

The slide worsened after OPEC delegates said their group and other producing countries were downplayed the chance of a bigger output when the producers meet on May 25, even though they said the output cuts were likely to be extended.

Support is building within OPEC to extend its oil production cuts by an additional three or six months, senior Gulf officials previously told CNNMoney.

The OPEC agreement, the cartel's first cut since 2008, was supposed to prop up oil prices and end the epic glut that has roiled the industry.

A glut of crude oil on the market helped push crude oil prices to historic lows a year ago, but the modest recovery has led to plans of expansion for major oil companies.

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However, Russia said on Thursday it had not yet decided whether to extend the agreement into the second half.

At 527.8 million barrels, the inventory levels are still 3% higher compared to the same time past year.

"It was somewhat disturbing that gasoline inventories went up yet another week, counter seasonally, and of course we saw continued increasing USA crude oil production", said Bjarne Schieldrop, chief commodities analyst at SEB Markets.

Oil prices started to stage a recovery by mid-morning, rising around 0.5% to 48.56 United States dollars (£37.53) per barrel - but still had a way to go before reaching last week's peaks of 53 USA dollars (£40.96).

Goldman is referencing the current and future relationship between near-term and the long-term price of oil.

"The energy complex is slowly succumbing to an opinion that this year's OPEC production cuts have been ineffective", Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.

Of course, the increase in Shale production is one reason for OPEC failure but the shale producer may be soon a victim of its own success. The drop is the result of continued concerns of oversupply and persistent production glut despite previous assurances from Saudi Arabia that OPEC together with Russian Federation will get supply under control.

Shares of US -based oil and natural gas producers were crushed, despite a spate of unexpectedly positive first-quarter profit and production reports.

Other reports by Guamnewswatch

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