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Oil Rises On Low US Inventories, Saudi Cuts

Oil Rises On Low US Inventories, Saudi Cuts”

When Khalid Al-Falih arrived at Davos in late January, the Saudi oil minister was exultant.

Opec risks hammering the oil price if they do not extend the cartel's oil supply cuts when it meets in two weeks, a top Vitol executive warned on Thursday, but said attempts to increase the size of the cuts would only strengthen USA shale producers. The International Energy Agency says that global oil discoveries a year ago were just 2.4 billion barrels.

Still, prices won't likely rebound quickly because of accelerating production from countries like U.S., Brazil, Canada, and even OPEC members Nigeria and Libya. The rising oil production has reduced demand for Saudi oil overseas too, keeping prices low. The strategy had an option for a six-month extension, but Riyadh initially thought it wouldn't be needed.

And yet, shale has defied the naysayers.

United States oil production rose to more than 9.3 million bpd last week, highest since August 2015. This improvement was due to a sharp acceleration in new business and output.

Forced to adjust to lower prices, shale firms reshaped themselves into leaner operations that can thrive with oil just above $50 a barrel.

WTI crude for June delivery rose 7 cents to $47.90/bbl at 9:26 a.m. Friday on the New York Mercantile Exchange, after the USA reported a steeper-than-expected drop in crude inventories.

Shortly before oil producers agreed in principle last September to stabilize the market, OPEC's analysts saw production outside of the cartel dropping by around 100,000 barrels a day in 2017.

OPEC de-facto leader, Saudi Arabia, is increasingly unable to control the global oil supply because of rising energy production in the U.S., Russian Federation and Iran.

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On Friday, Baker Hughes (BHI) reported that the number of active USA rigs drilling for oil climbed (http://www.marketwatch.com/story/oil-prices-hold-losses-as-baker-hughes-reports-17th-weekly-rise-in-us-oil-rig-count-2017-05-12) by 9 to 712 rigs this week.

U.S. light crude oil ended the day up 50 cents, or 1.6%, at $47.83.

Yet, the cartel faces big risks.

Nymex benchmark gasoline contract for June rose 0.2% to $1.5657 a gallon, while June diesel was 0.1% higher at $1.4916.

OPEC says what the world needs now is a bit less supply on the global oil market.

OPEC issued its monthly reports this week, clearly indicating a drop in OPEC production but still holding concerns of an uncertain future.

A day later, "we're seeing a pullback in price", said Andrew Lipow, president of Lipow Oil Associates in Houston.

Global petroleum and other liquids supplies totaled 97.09 million barrels per day in 2016, according to the EIA. Prices are back below $50 a barrel now and thanks to increased efficiency, US producers can still make money at those prices.



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