Oil rises on hopes of supply cut extension
Summary: REUTERS - Oil prices settled higher on Thursday, as key producing countries suggested they would extend supply cuts to reduce an ongoing global crude glut.....
Brent crude settled up 30 cents at $US52.51 a barrel, or half a per cent. U.S. crude oil settled at $US49.35 a barrel, up 28 cents, for the highest close since April 26.
Market watchers are growing more confident that the Organisation of the Petroleum Exporting Countries (OPEC) and other producers including Russia will extend output cuts of almost 1.8 million barrels per day (bpd) until the end of March 2018.
Russia's largest oil producer Rosneft will meet agreements with OPEC on oil output reductions, Igor Sechin, Rosneft chief executive, told reporters in Berlin.
Algeria, the African oil producer that played a key role bringing together support for OPEC's output deal last year, said that most participating nations back a nine-month extension of the cuts.
"The majority of the countries support the proposition of Russia and Saudi Arabia," Algerian Energy Minister Nouredine Bouterfa told reporters after meeting his Russian counterpart in Moscow.
Both benchmarks rose on Wednesday after news of a drawdown in U.S. crude inventories and a dip in U.S. output.
The U.S. Energy Information Administration said inventories fell 1.8 million barrels in the week to May 12 to 520.8 million barrels.
In addition to U.S. crude stocks drawing down for the sixth consecutive week, the EIA showed an increase in refining rates.
But Michael Dei-Michei, head of research at JBC Energy in Vienna, said the market should consider that intermediate products - gas oils, diesel oil and other products - are not featured in the headline EIA numbers, and those stocks are rising, which could lead to higher finished product inventories. That could slow the supply drawdown.
"The effects of higher crude runs may not have fully filtered through yet, with stocks of unfinished oils having risen strongly over recent weeks, meaning that the headline categories should start to reflect some of this in the near future," he said.
On May 25, leaders from OPEC and other producers will meet in Vienna to decide on output policy. The group is expected to prolong its agreement to limit production for up to nine months.
However, Gene McGillian, vice president of market research at Tradition Energy, said with increased production in Libya and Nigeria, as well as the United States, sticking to current cuts might not be enough.
U.S. crude production has climbed 10 per cent since mid-2016 to 9.3 million barrels per day, close to levels from top producers Russia and Saudi Arabia.