Oil rises on Saudi pledge to make real supply cuts
June 13, 2017 06:11 PM NPT
Photo Courtesy : Reuters
LONDON, June 13: Oil prices rose slightly on Tuesday after Saudi Arabia said it would make significant export cuts in July amid signs of a draw down in U.S. crude inventories, though increasing U.S. output continues to weigh on the market.
Brent crude futures LCOc1 were at $48.64 per barrel at 0833 GMT, up 35 cents, while benchmark U.S. crude CLc1 was at $46.38 per barrel, up 30 cents.
Saudi Arabia, the world's top exporter, is leading an effort by the Organization of the Petroleum Exporting Countries, Russia and other producers to cut output by almost 1.8 million barrels per day (bpd) through March 2018 to prop up prices.
During the first half of the year, there were doubts over OPEC's compliance with its own pledges.
Saudi officials now say they are making real cuts, including 300,000 bpd to Asia for July, although several Asian refiners said they were receiving their full allocation.
"Crude oil is still struggling to rebound," said Olivier Jakob, strategist at Petromatrix, explaining that the cuts from Saudi Arabia would need to continue beyond summer to have a significant impact.
"They're making a lot of headlines about reducing supplies but that's also right in their seasonal pattern of lowering exports in July, August because of domestic needs."
OPEC's exports have been falling since the start of the cuts in January, although some members such as Libya and Nigeria are exempt and doubts remain over the compliance of others, including Iraq.
Trade data shows OPEC shipments to customers averaged around 26 million bpd in the last six months of 2016, while they are set to average around 25.3 million bpd in the first half of this year.
Threatening to undermine OPEC's efforts is rising U.S. drilling activity RIG-OL-USA-BHI, which has driven up output C-OUT-T-EIA in the United States by more than 10 percent since mid-2016, to more than 9.3 million bpd.
U.S. crude inventories remain stubbornly high.
Traders on Monday pointed to data from market intelligence firm Genscape estimating a draw of more than 1.8 million barrels at the Cushing, Oklahoma delivery point for U.S. crude futures last week.
"Where oil prices go will be determined by the flow of inventory data," said Greg McKenna, chief market strategist at Australian futures brokerage AxiTrader.
Crude has lost 10 percent of its value since late May, when OPEC announced it would extend production cuts.