Oil rises on expectation of extended, possibly deepened output cut

The first OPEC delegate said he did not believe OPEC would deepen existing cuts, unless Saudi Arabia and its Gulf allies offered to take the bulk of the hit: "I still believe it is unlikely at this point".

"Oil soared.as rumours swirled that OPEC. was considering recommending the double whammy of a production cut extension and deeper cuts ahead of this Thursday's meeting", said Jeffrey Halley, analyst at futures brokerage OANDA in Singapore.

The rise in price is attributed to the expectation that an OPEC pledge that member countries as well as non-member countries such as Russian Federation would be reducing their supplies by approximately 1.8 million bpd would get an extension to possibly next year in March.

Saudi arrivals in April were down 3.9 per cent from a year ago to 3.96 million tonnes, or about 963,000 bpd, down from the 1.07 million bpd rate in March, customs data showed.

According to one of the newspaper's sources, Falih may also try to use the trip to improve the relationship with Iraqi Oil Minister Jabbar Luaibi after disagreement over Iraq's own production statistics and those of the OPEC.

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"Our expectation going forward is continuing a balanced and reasonable cut in volumes will optimize for all producers all their revenue, while at the same time keeping prices in a reasonable range for consumers and for the overall market", he said.

"He (Falih) has talked to several countries including Norway, including Turkmenistan, including Egypt, and they have made signs of their willingness to join the collaboration", Kuwait's oil minister Essam al-Marzouq said on Tuesday. However, in a press conference held shortly after 12 p.m. ET, Luaibi said he agreed it was necessary to carry over the deal for another nine months.

The agenda of the meeting, to be attended by both OPEC and non-OPEC producers, is to extend output cuts in view of the recent rise in U.S. shale inventories.

But nerves remain. Oil prices slipped Tuesday after US President Donald Trump proposed selling about half of the US's strategic oil reserve over the next ten years.

Saudi Arabia and Russian Federation, the world's top two crude producers, agreed last week that the extension will need to be formally adopted by OPEC in Vienna, and then by non-OPEC producers as well.

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Brent for July settlement fell 52 cents to $53.35 a barrel on the London-based ICE Futures Europe exchange.

The Saudia and Russian agreement, coupled with support from OPEC's other heavy hitters Iraq and Iran, have pushed oil prices more than 10% higher in the past two weeks as the market priced in an extension to the cuts.

US shale-oil producers have been steadily ramping up production with the Energy Information Administration, forecasting USA output to hit a record of almost 10 million barrels a day in 2018.

This is because OPEC's oil supplies in 2017 have so far not actually fallen when compared with a year ago, when oversupply was seen at its worst. OPEC and its partners will meet on May 25 in Vienna to decide whether to prolong their supply cuts past June. According to Sada, the breakthrough in reducing stocks was due to the "excellent compliance to the agreed production cuts by OPEC members and participating non-OPEC countries".

Demand may also slow. "You get something in the short term, but you get a backflip in the medium term, which is more production in 2018 and 2019", Schieldrop said, referring particularly to USA shale oil output.

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USA shale production, which is on target to rise by 440,000 barrels this year, has proven the fly in the ointment of OPEC and Russia's efforts to boost the oil price.

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