Published: Sat, May 20, 2017
Markets | By Noel Gibbs

Higher US Crude Output Should Pressure Oil Prices

Higher US Crude Output Should Pressure Oil Prices

Top exporter and de facto Opec leader Saudi Arabia said on Monday it would "do whatever it takes" to rebalance a market that has been dogged by oversupply for over two years, resulting in crude prices below $50 per barrel.

USA crude stockpiles posted their biggest weekly drawdown since December last week as imports dropped sharply, while inventories of refined products also fell.

Saudi's Oil Minister Khalid al-Falih said he's "rather confident" OPEC will extend its production cuts into the second half of the year and "possibly beyond".

Saudi Aramco, which is a state-owned, is going to low oil supplies to Asian customers in June by 7 million barrels.

Oil prices rose on Thursday, with benchmark Brent crude trading comfortably above $50 a barrel after a fall in USA inventories and a bigger-than-expected cut in Saudi supplies to Asia helped tightened the market. "OPEC members have no choice but to talk up prices by signalling an extension to the production cuts agreement".

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The rebound in oil prices to around $50 in recent months breathed new life into US producers, who have boosted drilling in shale regions, lifting USA output to levels not seen since mid-2015.

The news agency reported that state-owned Saudi Aramco will reduce oil supplies to its Asian customers by almost seven million barrels next month as it is likely to witness a surge in domestic power demand over summer.

Brent crude was down 8 cents at $49.02 a barrel at 1:45 p.m. EDT (1745 GMT).

But the Opec-led efforts to reduce bulging global oil inventories have been undermined by a surge in drilling in the United States, filling much of the gap left by Opec.

However, efforts of OPEC to reduce global oil inventories have been undermined by a surge in U.S. drilling, which has knocked more than 10 per cent off the price of oil in the last month.

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The report will add to a debate about the effectiveness of the supply cut pact, which is expected to be extended when producers meet later this month.

The EIA data also showed distillate stockpiles, which include diesel and heating oil, fell by 1.6 million barrels, versus expectations for a one-million-barrel decline.

On Thursday, non-members Turkmenistan and Equatorial Guinea said they would join the cuts, though they are smaller producers.

The May report also changes to the EIA's earlier estimates for crude oil and refined product pricing for 2017.

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