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Oil edges up as Saudis reported to back extension of production cuts

13 April 2017

The amount of crude in storage fell by almost 2.2 million barrels according to the EIA - well above what analysts had been anticipating and more than the 1.3 million barrel drop reported Tuesday by the American Petroleum Institute, an industry group.

The Organization of the Petroleum Exporting Countries explicitly said a joint deal with non-OPEC producers to cut some 1.8 million bpd in the first half of 2017 was aimed at slashing an excess of around 300 million barrels of crude and petroleum products in OECD stocks.

Light sweet crude oil (WTI) futures rose 0.31 dollar or 0.58 percent to close at USD 53.79 a barrel at the New York-based commodity exchange NYMEX. Net crude oil imports increased by a smaller amount (460,000 b/d), as USA crude oil exports rose despite a decline in US crude oil production. Crude oil prices turned positive yesterday, reversing course on reports that Saudi Arabia has told Opec officials it wants to continue output cuts for an additional six months.

The government's Energy Information Administration (EIA) said on Tuesday U.S. 2018 crude output would rise to 9.9 million bpd, from 9.22 million bpd this year.

The spread between crude oil inventories and the five-year average started to widen in January 2015 after it broke four-year highs and hit record levels.

"The number of drilling rigs and the reactivation of companies' spending are the two most important factors leading to an expected output surge in the coming months", the report noted.

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The biggest producer in OPEC cut output by 111,000 barrels a day last month to 9.9mn a day, according to the person, who asked not to be identified.

Khalid Al-Falih, Saudi Arabia's energy and industry minister, arrives for the 171st Organization of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on Wednesday, Nov. 30, 2016.

At the end of March, however, "unplanned supply outages in Libya and market perceptions of an increased likelihood of an extension of the voluntary production cuts may have contributed to price increases", the report said.

Rising production has come before record US oil stockpiles have had time to drain, putting pressure on regional prices.

This means production has fallen by more than OPEC said it would and amounts to 104 per cent adherence to the supply cut regime, according to an OPEC calculation. Prices have dropped 1.6 per cent this year. Payrolls are once again rising in the oil and gas sector according to ADP job numbers.

USA crude production is set to grow to 9.9 million bpd in 2018, from 9.22 million bpd this year.