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Oil prices edge up in anticipation of extended crude output cut

Debra Rodriguez | 10 May, 2017, 01:29

Nigeria, Africa's largest economy, seeks for a further six-month extension of its exemption from reducing oil production granted by the oil producers' group.

Brent crude futures were trading at $49.33 per barrel down from a high of $49.60, while US West Texas Intermediate (WTI) crude oil futures fell to $46.40, reported Reuters.

At a press conference later, Petroliam Nasional Bhd president and chief executive officer Datuk Wan Zulkiflee Wan Ariffin said the state-owned oil producer is committed to continuing with the agreed production cut, in the event the arrangement is extended.

As per the accord between Russian Federation and other Petroleum Exporting Countries, participants have been called to cut 1.8 million barrels per day from their joint output.

After falling to their lowest levels since OPEC agreed to cut production back in November a year ago, Goldman Sachs have warned oil prices are nearing "capitulation".

Higher crude output from the US should pressure global oil prices through the end of 2018, the USA government said May 9, ahead of a meeting later this month at which OPEC and non-member producers will discuss extending supply cuts. Opec's dilemma now is that if oil prices go above US$60 per barrel, demand will weaken and new supplies will appear.

"My expectations (are) that the rebalancing that started slowly in 2016 will have its full impact by the first half", he said.

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Saudi and other officials from the Organization of the Petroleum Exporting Countries have been dropping increasingly strong hints in recent weeks that an extension was likely, even while they tried to keep their options open.

As such, Fesharaki warned that crude oil has a downside risk of declining to as low as US$40 per barrel.

However, with hedge funds turning bearish and oil prices giving up most of their post-agreement gains last week, the need for a clearer signal has become urgent.

On the other hand, as producers are cutting down their output, the worry is that the taking up the crude as fast as it has been expected by end-users is not happening.

OPEC's efforts to tighten the market and prop up prices have been undermined by a relentless rise in US production, especially from shale oil drillers.

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.

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