Oil rises on potential Saudi Arabian output cut extension

oil25SINGAPORE: Oil prices rose on Wednesday, putting crude futures on track for their longest streak of gains since August 2016, as Saudi Arabia was reported to be lobbying OPEC and other producers to extend a production cut beyond the first half of 2017.

Brent crude futures LCOc1, the international benchmark for oil, were at US$56.36 per barrel at 0457 GMT, up 13 cents, or 0.23%, from their last close, and their highest since early March.

If Wednesday’s price rises hold, they would mark the seventh straight daily increase. That would beat a six-day bull-run from August 2016, although the price jump then was 17.5% versus a 6 % rise in the current rally of consecutive rises.

US West Texas Intermediate (WTI) crude futures CLc1 were up 9 cents, or 0.19%, at US$53.49 a barrel, also their highest since early last month.

Traders said that the price rises were a result of reports that Saudi Arabia, the de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), had told other producers that it wanted to extend a coordinated production cut beyond the first half of the year.

OPEC and other producers, including Russia, have pledged to cut output by around 1.8 million barrels per day (bpd) during the first half of the year in an effort to rein in global oversupply and prop up prices.

While compliance from some participants has been patchy, Saudi Arabia has made significant cuts, with production PRODN-SA down 4.5 since the end of last year, despite a slight increase in March to 9.98 million bpd.

“Saudi Arabian production reduction appears to be ahead of forecast and gave oil a boost,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

Despite this, there are still some concerns that oil markets remain bloated and oversupplied.

Fearing a loss of market share, Saudi Arabia is shielding its most important customers in Asia from the cuts, continuing to supply them with all contractual volumes.

And in the United States, both production and inventories are surging.

US crude oil production C-OUT-T-EIA has risen by 9% since mid-2016 to 9.2 million bpd, resulting in a surge in commercial inventories to a record 535.5 million barrels C-STK-T-EIA, although a report on Tuesday by the American Petroleum Institute suggested a dip in crude stocks.

Official US oil production and inventory data will be published later on Wednesday by the Energy Information Administration (EIA).