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Oil trades near five-month lows despite Saudi assurances on cuts

14 May 2017

Oil slid more than 4 percent on Thursday, to its lowest since late November as investor worries about a growing global glut of crude erased most of the gains that followed last year's OPEC's output cut.

In agreement made past year, OPEC, Russia and other producers announced goals to curb production by 1.8 million barrels per day (bpd) for six months from January 1.

At the time of publishing, global benchmark Brent crude was trading 0.72 per cent higher at $48.73 a barrel, while West Texas Intermediate (WTI) prices were 0.44 per cent higher at $45.72 a barrel.

US oil futures on the NYMEX fell almost 4 percent and averaged about $49 per barrel during the five trading sessions ended May 2.

Reuters on Thursday quoted three delegates as saying that OPEC and non-OPEC oil producers looked likely to extend their agreement to limit supplies beyond its June expiry to help clear a glut, downplaying the chance of additional steps such as a bigger cut.

While the steep price fall is likely to force Opec members to extend production cuts when they meet later this month, analysts do not expect producers to scale back output any further.

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A glut of crude oil on the market helped push crude oil prices to historic lows a year ago, but the modest recovery has led to plans of expansion for major oil companies.

The cuts in production resulted in a significant rally in oil prices, with Brent trading as high as $56 per barrel in February.

Brent crude fell 1.8% at $47.49 a barrel, while U.S. crude dropped 2.1% to $44.58 a barrel. Oil prices stabilized in Asian trading Friday after hitting a five-month low while regional stock benchmarks headed lower in holiday-thinned trading.

USA crude output is at its highest since August 2015 as shale explorers intensify drilling.

Others, as quoted by the BBC, see the drop as an indication of "jittery" markets ahead of OPEC's May 25 meeting when an extension of the original cut agreement will in all likelihood be announced.

"The market appears to have temporarily lost faith in ever seeing an impact of the OPEC cuts on inventories", Michael Cohen, head of energy commodities research at Barclays Plc in NY, said by telephone.

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Fears are growing that Opec and non-Opec producers' reductions are not doing enough to curb output as USA stockpiles grow while the country's shale gas production rockets.

"Weekly U.S. government data on Wednesday showed crude stocks fell 930,000 barrels, less than half the 2.3 million barrel drop analysts had expected".

"On the other hand, the refusal to reduce oil production will lead to price slump to $40 a barrel", Yakushev added.

Another driver for the weakness in the oil markets has been a disappointing appetite for gasoline in the U.S.

However the latest Reuters survey of OPEC production showed the country's compliance had fallen slightly.

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Oil trades near five-month lows despite Saudi assurances on cuts