Oil tumbles amid oversupply fears, unlikelihood of deeper Opec cuts

Tammy Harvey
May 14, 2017

NEW YORK, May 5 (Reuters) - Oil prices closed 1.5 percent higher on Friday, rebounding from five-month lows, following positive U.S.jobs data and assurances by Saudi Arabia that Russian Federation is ready to join OPEC in extending supply cuts to reduce a persistent glut.

The slide steepened after OPEC delegates downplayed the chance that their group and other producing countries would deepen their output cuts when they meet on May 25.

Shares of London-listed oil majors struggled for direction, with BP's stock hovering near the flatline at 444.5p, while Royal Dutch Shell's "B" shares were up around 10p at 2,072p.

The moves are likely to add even further pressure on OPEC members as they prepare for their next meeting on May 25 in Vienna, when they are expected to discuss extending a late-November agreement on production cuts that has, along with participation from Russian Federation, taken 1.8 million barrels of crude from the market each day.

"This was later clarified by the Russian energy minister who said the Opec cuts deal should be extended, a little late in the day it has to be said, though probably nothing to do with the fact that prices closed at their worst levels in five months, maybe". Prices closed at $45.23 on November 29, the day before OPEC agreed to supply cuts.

The market is expecting OPEC and other producers to extend production cuts well into the second half of the year.

The Reuters news agency, citing OPEC sources, reported on Thursday evening that countries behind the production cuts - including powerhouse producer Saudi Arabia - were unlikely to agree deeper reductions shortly but maintain current pumping levels until the end of the year.

West Texas Intermediate, the USA benchmark for the price of oil, was down 1.8 percent to $46.97 per barrel.

Brent crude prices have rallied somewhat after plunging to below $47 a barrel this morning. Stocks have steadily declined for the last four weeks, but at 527.8 million barrels they are just 7 million barrels off a record high. OPEC and non-OPEC states initially agreed to cut 1.8 million barrels per day (bpd) in the first six months of 2017.

Separately, data from the Energy Information Administration released Wednesday showed USA crude output jumped to 9.29 million barrels per day - the highest since August 2015.

The explosion in US shale oil output over the past decade has reshaped the global energy landscape, vaulting America into the upper ranks of worldwide producers.

"The market appears to have temporarily lost faith in ever seeing an impact of the OPEC cuts on inventories", Michael Cohen, head of energy commodities research at Barclays Plc in NY, said by telephone.

"The fact is it's not about one particular headline but more about the fears that are finally coming true; we have watched production cuts hold steady while exports grow", Friedlander said.

Traders said that the tumbling market was a result of soaring USA oil production, which has risen over 10 percent since mid-2016 to 9.3 million bpd, levels not far off top producers Russian Federation and Saudi Arabia.

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