Oil Trades Near One-Month High Before OPEC Meets on Output Cuts

Oil Trades Near One-Month High Before OPEC Meets on Output Cuts

The current agreement is expected to expire in June 2017 and the meeting to extend it will begin in Vienna on Thursday.

The Opec and non-member oil producers could deepen output cuts or extend them for a year when they meet in Vienna this week as they seek to clear a global stocks overhang and prop up the price of crude, Kuwait said on Wednesday.

All members of the Organization of the Petroleum Exporting Countries (OPEC) appear to be supporting the extension of the oil production curtailment agreement, but the timeframe remains the topic for discussion, Iranian Oil Minister Bijan Namdar Zanganeh said Wednesday, Sputnik reports.

Crude has climbed as Saudi Arabia and non-OPEC member Russian Federation rally support for an extension into 2018 of the output-cut deal by the Organization of Petroleum Exporting Countries and its allies.

However, even a nine-month extension would be woefully insignificant, according to Johannes Benigni, chairman of JBC Energy Group, who claims market observers have always been too optimistic and that oil supply and demand will not be balanced before the end of 2019. "The appeal to other countries to take adequate measures on oil production cut is also rather important", said the Azerbaijani minister.

Speculation was rife that the cuts may be extended by nine and possibly 12 months, said Jeffrey Halley, analyst at futures brokerage OANDA in Singapore.

Al-Sada said, "Since the accord went into force on January 1 this year, Opec countries have shown full and unprecedented compliance".

But front-month prices had already risen by more than $18 per barrel over the 10 months prior to the last OPEC meeting.

But as prices climb, the group's export sales could increase to $539 billion this year, despite its oil production cuts, the Energy Department said last week.

This week, Iraq agreed to support a move to extend the cuts after a visit by Saudi Arabia's energy minister, Khalid Al-Falih, appeared to quell tensions. That added to the backing for another nine months of cuts from the most influential participants in the deal, including Russia, Saudi Arabia and Iraq.

Under the existing deal, Iran received an exemption slightly to raise output, which has been curtailed by years of Western sanctions.

OPEC and several non-OPEC producers agreed to cut output back in November, which marked the cartel's first cut since 2008 and reversed its two-year strategy of pumping as much oil as desired.

Saudi Arabia is also making a huge effort to diversify its economy away from oil exports, but don't expect the Kingdom or many other OPEC members to ditch oil anytime soon. For the same period, an S&P Global Platts survey of analysts had consensus estimates for a decrease of 2.8 million barrels in crude inventories, a decrease of 400,000 barrels in gasoline inventories and a drop of 500,000 barrels in distillate stockpiles.

The price rise this year has spurred growth in the US shale industry, which is not participating in the output deal, thus slowing the market's rebalancing with global stocks still near record highs.

The oil price is holding at recent highs on the eve of a key meeting in Vienna tomorrow among ministers from the Opec cartel. "So it's a bit cyclical", said Sushant Gupta, research director for consultancy Wood Mackenzie.

USA crude oil inventories fell for the seventh straight week as refiners processed a near record amount of crude last week, the Energy Information Administration (EIA) said May 24, even as gasoline and distillate stockpiles also dipped.

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