OPEC Favors Production Cut Extensions As Next Meeting Nears

OPEC Favors Production Cut Extensions As Next Meeting Nears

OPEC Favors Production Cut Extensions As Next Meeting Nears

OPEC members are cutting production in an effort to drive up oil prices, but a robust USA output has prevented any significant rally.

Responding to rising production, benchmark crude prices are down 10 per cent since January, and analysts warn that more falls could follow.

Thomson Reuters Oil Research and Forecasts data shows around 714 million barrels of oil are being shipped to Asia this month, up three per cent since December when the cuts were announced. Saudi Arabia is ready to extend cuts if supplies stay above the five-year average, Energy Minister Khalid Al-Falih said in an interview on Bloomberg Television last week. That's because even the relatively modest oil price recovery of the past year is driving a quick rebound in USA oil production. As reports about the strong compliance rates began to filter out in early 2017, prices moved even higher. But an oil price rally after the deal has been hobbled by data showing persistently rising U.S. stockpiles.

Meanwhile, the deal between Opec and non-Opec producers, which was agreed late previous year and aimed to curb production, appears to be having little effect on the glut at the moment, with three of the last four weeks showing substantial inventory increases. Additionally, refineries tend to reduce their oil stocks at the end of each year for tax reasons.

Low demand and rising production could weigh down palm oil prices.

Meanwhile, encouraging economic data from the second biggest economy and the largest copper consumer China have raised expectations of higher demand for the commodity, which in turn have led to an increase in prices. For the past few weeks, production has been up on a year-over-year basis for the first time in more than a year.

"Sentiment remains bearish towards oil and the fading optimism over the effectiveness of [the Organization of the Petroleum Exporting Countries'] supply cut deal could encourage sellers to attack prices further", he said.

U.S. Oil Rig Count, data by YCharts. If market balancing indeed has to start, we need to see a sustained drawdown in oil stockpiles.

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