Oil rises sharply as Saudi, Russia back supply cuts into 2018

Oil rises sharply as Saudi, Russia back supply cuts into 2018

Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce the output by 558,000 barrels per day starting from January 1, 2017 for six months, extendable for another six months.

Meanwhile, Brent crude oil prices surged more than 2.4 per cent to $52.15 on Monday, after Saudi Arabia and Russian Federation agreed to extend production cuts into 2018.

Oil prices strengthened on Wednesday ahead of United States crude inventory data that could give investors a clue as to whether an OPEC-led output cut is making progress in reducing the persistent global supply overhang.

Traders came in early Wednesday with a bearish tilt because the weekly inventories report from the American Petroleum Institute for the week-ending May 12, released late Tuesday, showed a surprise crude oil build rather than the estimated draw down.

The International Energy Agency (IEA) said on Tuesday that commercial oil inventories in industrialised countries rose by 24.1 million barrels in the first quarter of the year, a time when the OPEC-led production cut was already in place.

UBS oil analyst Giovanni Staunovo said he saw a 60 percent probability of OPEC extending output cuts.

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Organisation of the Petroleum Exporting Countries (OPEC), continued to reduce production in April, but output from Africa's top exporter - Nigeria, increased by 273,600 barrels per day (bpd). Riyadh and Moscow say they should be extended until March. Some analysts have said a deeper cut could even be on the table.

Oil producers have been trying to boost prices, as crude futures trade around $50 a barrel, less than half their level from early 2014, though above the low of below $30 in early 2015.

The world oil supply in 2016 averaged 95.82 mbpd, representing an increase of 0.34 mbd compared to a year ago.

Shipping data in Thomson Reuters Eikon shows that U.S. oil exports to Asia have soared from just a handful of tankers per quarter throughout 2015 and 2016, to 10 tankers in the first quarter of this year, a figure that is expected to rise in the second quarter.

A second source said he expected Iran would probably agree to a nine-month extension when OPEC and non-OPEC producers meet to set policy on May 25 in Vienna, provided that other producers such as Iraq were also on board.

North Sea oil shipments to Asia have also been at record highs this year, with nearly 19 tankers registered to have been shipped in Q1, and a similar amount expected to go to Asia in the second quarter.

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