Oil prices rose by about 3.5 per cent after Iraq and Algeria joined Saudi Arabia in supporting an extension to OPEC supply cuts. Concerns about rising output from the United States, Libya and Nigeria still pressured prices, however.
Brent crude was up $1.81 at $50.54 a barrel while U.S. light crude oil was $1.81 higher at $47.69 a barrel. Brent crude was up 68 cents at $49.41 a barrel in the afternoon and U.S. light crude oil was 69 cents higher at $46.57 a barrel.
“U.S. crude oil production is now solidly above 9.3 million barrels per day with more to come, and refined product, especially for gasoline, is oddly weak,” said John Kilduff, partner at hedge fund Again Capital in New York.
Some analysts questioned whether the staying power of the sharp price rebound after the U.S. Energy Information Administration said crude inventories fell 5.2 million barrels last week, much more than the 1.8 million-barrel slide analysts predicted. Gasoline and distillate stocks also fell, supporting a market that has sold off in recent weeks due to persistently high U.S. inventories.
“Oil prices are still finding it difficult to recoup the losses they suffered last week,” analysts at Commerzbank said in a note, adding the impact on prices from the fall in U.S. inventories had been underwhelming.
Also supporting prices were comments from Algeria’s energy minister on Wednesday that Algeria and Iraq favour extending global supply cuts when OPEC meets later this month.
On Monday, Saudi Arabia’s oil minister Khalid al-Falih said he expected the output deal to be extended to the end of the year or possibly longer.
State-owned Saudi Aramco will also reduce oil supplies to Asian customers by about 7 million barrels in June, a source told Reuters, as part of the Organization of the Petroleum Exporting Countries’ deal to reduce production. Aramco had previously maintained supplies to important Asian customers.
But questions remain about the effectiveness of OPEC-led cuts, with OPEC member Libya saying production now exceeded 800,000 barrels per day (bpd) for the first time since 2014 and could rise to 1.2 million bpd later this year.
Nigeria, which along with Libya is exempt from OPEC cuts, is also expected to see a jump in output soon as Shell tests the Trans Forcados oil export pipeline before it restarts.
Brent and U.S. light crude futures contracts closed on Tuesday at their second lowest levels since Nov. 29, the day before OPEC announced it would cut output in the first half of 2017. Prices surged after that deal, but have come under pressure in recent weeks as U.S. production has climbed, undermining OPEC-led efforts to balance supply with demand.
