Iraq, Algeria support extension of oil production cuts

Iraq, Algeria support extension of oil production cuts

OPEC on Thursday sharply raised its forecast for oil supply from non-member countries in 2017 as higher prices encourage USA shale drillers to pump more, hampering the producer group's efforts to clear a glut and support prices by cutting output.

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.

WTI also fell 1.2 percent in the previous session, and the closing price for both contracts on Tuesday was the second lowest since November 29, the day before the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut production during the first half of 2017.

In the United States, crude stockpiles posted their biggest weekly drawdown since December last week as imports dropped sharply, while inventories of refined products also fell.

The Energy Information Administration reported that USA commercial crude inventories fell by 5.2 million barrels to a total of 522.5 in the week through May 5. "This means OPEC must do more than just rolling over the production cut deals in order to maintain this price floor", said Mr. Gao.

The report will add to a debate about the effectiveness of the supply cut pact, which is expected to be extended when producers meet later this month.

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"Crude prices could be poised for recovery", US investment bank Jefferies said in a note.

"The reason why the bears have been able to control this market is we haven't seen the hard evidence; there are a lot of doubting Thomases that say there's been no drawdown", said Phil Flynn, analyst at Price Futures Group in Chicago. "U.S. tight crude output is expected to rise rapidly and increase by 600,000 bpd in 2017", OPEC said, using anther term for shale. The 5.25mn barrel decline in stocks was the largest since December and brought inventories down to the lowest level for 10 weeks.

Prices surged after that deal, but have come under pressure in recent weeks as US production has climbed, undermining OPEC-led efforts to reduce a global crude glut.

Meanwhile, the benefits of OPEC's agreement to cut output have proved elusive.

Presently, the trading of oil is close to $50, and OPEC seems to lose its capability to control prices.

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