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Oil rises on expected Opec supply cuts, but record US production drags

Opec's de-facto leader Saudi Arabia wants the cartel and its allies to cut output by about 1.4 million barrels per day

Reuters  |  Singapore 


Oil prices rose on Friday amid expectations of supply cuts from Opec, although record US production dragged.

US Intermediate (WTI) futures were at $56.84 per barrel at 0353 GMT, up 38 cents, or 0.7 per cent, from their last settlement.

Brent futures were up 48 cents, or 0.7 per cent, at $67.10 per barrel.

Prices were mainly supported by expectations the Organization of the Exporting Countries (Opec) would start withholding supply soon, fearing a renewed rout such as in 2014 when prices crashed under the weight of oversupply.

Opec's wants the cartel and its allies to cut output by about 1.4 million barrels per day (bpd), around 1.5 per cent of global supply, sources told Reuters this week.

However, warned a cut by the dominated cartel may not have the desired effect.

"The - Brent and WTI - are both light-sweet crudes and reflect this glut," the US said.

"production cuts are usually implemented by removing medium and heavier barrels from the market but that does not address the oversupply of light-sweet."

Due to the structural oversupply that has emerged in the market from record production by many countries, said that " cuts are inherently temporary (because) all they can do is shift production from one period to another".

While considers withholding supply, US production reached another record last week, at 11.7 million bpd, according to Information Administration (EIA) data published on Thursday.

US output has surged by almost a quarter since the start of the year.

The record output meant US posted the biggest weekly build in nearly two years.

Crude inventories soared 10.3 million barrels in the week to Nov. 9 to 442.1 million barrels, the highest level since early December 2017.

This surge contributed to oil prices falling by around a quarter since early October, taking many by surprise.

"Oil bulls, us included, have capitulated and we no longer see oil climbing to $95 per barrel next year," of America Merrill Lynch said in a note.

While sentiment has turned bearish, some analysts warn that 2019 could be tighter than expected.

"We expect 2019 to reach 101.1 million bpd," natural resources research and investment firm & Rozencwajg said, up from just under 100 million bpd this year.

At the same time, the firm said production outside was set to disappoint.

Add Opec's expected supply cuts, and & Rozencwajg said "those investors who are able to adopt a contrarian stance ... and stomach the volatility ... are being presented with an excellent investment opportunity" to buy into oil after the recent slump.

of America agreed, saying "we believe oil is oversold and will likely bounce up from the current levels, as Opec+ dials back production in December".

First Published: Fri, November 16 2018. 09:43 IST