OPEC May Extend Supply Cuts to Bolster Recovery in Oil Prices

Members of the Organization of Petroleum Exporting Countries (OPEC) favor extending production cuts beyond June to continue efforts to rebalance global oil markets, according to a new report by Reuters. May Brent crude LCOK7, -0.14% gave up 14 cents, or 0.3%, to $51.62 a barrel on the ICE Futures exchange in London.

The Organization of the Petroleum Exporting Countries (OPEC) is curbing its output by about 1.2 million barrels per day (bpd) from January 1, the group's first reduction in eight years.

In the United States, drillers added 14 oil rigs in the week to March 17, according to Baker Hughes.

USA oil this month dropped below $50 a barrel for the first time this year as the nation's near- record crude stockpiles and increasing production weighed on the output reductions by the Organization of Petroleum Exporting Countries and its allies. Estimates of the compliance rate vary, but OPEC says that the parties to the recent agreement implemented 94% of their pledged production cuts by February.

In a note to clients, AB Bernstein was quoted by Reuters as saying the reduction in OPEC production from the start of 2017 will start to show up between mid-March and mid-April, thereby improving crude prices.

"The reopening of the Libyan ports is the reason for today's drop and the US rig count doesn't help", Bob Yawger, director of the futures division at Mizuho Securities USA Inc in NY, said by telephone. Two years ago, analysts assumed that oil prices below $60 would cause a huge decline in shale oil production.

Local refineries processed 2.127 million bpd, down from 2.155 million bpd in December. Hence, oil prices can start climbing up if OPEC can pull off another deal in which members agree to deepen or extend the production cuts.

OPEC next meets to decide output policy on May 25 in Vienna. For the second half, the situation will be much more dependent on what OPEC and some non-OPEC nations chose to do.

The initiative would require that the 11 NOPEC nations that were a part of the original deal commit to extended cuts as well, anonymous sources from within the bloc said.

"An extension is needed to balance the market", an OPEC delegate said. "Although OPEC's inability to balance the oil markets in the first half of 2017 has sparked speculations of the organization extending its six-month contract, the rise of US shale and lingering concerns of some members not fully following the compliance in cutting production could create headwinds".



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