Saudi Aramco cuts to Asia sees oil prices rally

Posted May 20, 2017

Thirteen OPEC members and 11 non-OPEC countries, led by Russian Federation, had agreed on November 30, 2016 to reduce their production by about 1.8 million barrels per day (bpd) for six months beginning from January in an effort to drain a glut of crude that held down prices for over two years.

USA energy firms added oil rigs for a 16th week in a row last week extending a drilling recovery into a 12th month, energy services firm Baker Hughes Inc said on Friday.

Reuters reported that OPEC and its non-OPEC partners were considering an extension to the current deal, which comprises an output cut of 1.8 million barrels per day (bpd), for nine months or more.

The United States, Canada and Brazil are not among producing countries including Russian Federation who meet with OPEC this month to decide whether to continue output cuts of 1.8 million barrels per day in an effort to reduce a global crude glut and support prices. Aramco had previously been maintaining supplies to its important Asian customers.

Global benchmark Brent futures LCOc1 were up 19 cents, or 0.4 percent, at $48.92 a barrel at 0612 GMT.

Oil prices rose on Thursday, with benchmark Brent crude trading comfortably above $50 a barrel after a fall in U.S. inventories and a bigger-than-expected cut in Saudi supplies to Asia helped tightened the market. However, its estimate on average oil prices in 2017 was cut down to $52.60 a barrel for Brent and $50.68 for WTI.

Saudi Aramco will reduce oil supplies to Asian customers by about 7 million barrels in June.

A decision on whether to continue the production cuts is expected at OPEC's next official meeting on May 25. "U.S. tight crude output is expected to rise rapidly and increase by 600,000 bpd in 2017", OPEC said, using another term for shale.

"Russia is in solidarity with the efforts of our partners to rebalance the market and considers that the joint initiative to stabilise the world oil market is now effective", energy minister Alexander Novak said, Russian news agencies reported.

"But oil demand growth this year is underwhelming, in part explaining why crude oil prices and refining margins have sold off sharply recently", the bank said in a note to clients.

Non-cartel producers led by Russian Federation partially matched the cuts.

Currently, OPEC is planning to extend the tenure of this oil curb to the year-end or to next year.

Production rose, however, and gasoline demand over the last four weeks was 2.5 percent lower than at the same time period a year ago.