Oil prices rose on Thursday, and Brent was firmly back over $50 per barrel, as a fall in US fuel inventories and a bigger than expected cut in Saudi supplies to Asia tightened the market. International Brent crude futures were at $50.46 per barrel at 0438 GMT on Thursday, up 24 cents, or 0.5 percent, from their last close. US West Texas Intermediate (WTI) crude futures were at $47.57 per barrel, up 24 cents, or 0.5 percent from the last settlement.
“We saw the biggest draw in inventories for the year last week with stockpiles down more than 5 million barrels. And it looks like OPEC’s production cut is finally biting,” said Greg McKenna, chief market strategist at futures brokerage AxiTrader. The Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia have pledged to cut output by almost 1.8 million barrels per day (bpd) during the first half of the year.
So far, however, there have been few signs that markets have tightened significantly as producers shielded their biggest customers, especially in Asia, from the cuts. But after Brent prices fell back below $50 per barrel last week, analysts said producers felt forced to act. Saudi Arabia, the world’s biggest oil exporter, has notified several Asian refiners of its first cuts in crude allocations for regional buyers since OPEC’s output reduction took effect in January.
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Saudi Aramco will reduce oil supplies to Asian customers by about 7 million barrels in June. “OPEC and non-OPEC members have shown commitment to production cuts and an extension of the agreement… will assist in drawing stocks over Q3 and stabilising the market,” BMI Research said in a note. In the United States, crude stockpiles posted their biggest weekly drawdown since December last week as imports dropped sharply, while inventories of refined products also fell.
Crude inventories fell 5.2 million barrels in the week to May 5, the U.S. Energy Information Administration said. At 522.5 million barrels, crude stocks were the lowest since February. While U.S. oil inventories fell, the country’s crude oil production continued to rise, jumping above 9.3 million bpd last week, in what is now a more than 10 percent increase since its mid-2016 trough.
BMI said that “continued output growth… particularly in the U.S.” would cap price upside gains from the supply cuts, adding that it expected average 2017 prices of $57 per barrel for Brent and of $53.75 a barrel for WTI.
(Reporting by Henning Gloystein; Editing by Richard Pullin and Christian Schmollinger)