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Gulf OPEC countries start talks on end of OPEC+ cuts

27 May 2018

- An unexpected rise in United States crude oil inventories and a possible increase in OPEC+ output both point to lower crude oil prices.

Earlier this month, an OPEC source familiar with the kingdom's oil thinking told Reuters that Saudi Arabia is monitoring the impact on oil supplies of the USA withdrawal from the Iran nuclear deal and is ready to offset any shortage but it will not act alone to fill the gap.

The Energy Information Administration said domestic stockpiles rose by 5.8 million barrels last week, and gasoline stockpiles were up 1.9 million barrels.

These factors have helped push Brent and WTI to multi-year highs, with Brent breaking through an $80 threshold last week for the first time since November 2014.

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United States crude oil production for yet another week for week ending May 11-the most recent data available-increased to 10.723 million bpd, according to the EIA.

The prospect of renewed sanctions on Iran after Trump pulled out of an global nuclear deal with Tehran has further boosted prices in recent weeks. "Putting some oil back into the market will prevent oil prices from going to $100 in the second half of 2018, which is good. The mere contemplation of it has hit oil prices this week", said John Kilduff, a partner at Again Capital LLC in NY.

Tuesday evening the American Petroleum Institute (API) reported that crude inventories fell by 1.3 million barrels in the week ending May 18.

Oil prices have been supported by the reduced crude output from the OPEC and the fact that USA crude inventories have been falling of late.

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Brent futures fell 37 cents, or almost 0.5 percent, to $79.20 a barrel by 0636 GMT, after climbing 35 cents on Tuesday. USA refineries produced about 10 million barrels of gasoline a day last week, down by about 500,000 barrels compared to the prior week.

Phil Flynn, the senior market analyst for the PRICE Futures Group in Chicago, said in a daily emailed newsletter the USA crackdown on Iran and Venezuela is adding a risk premium to the price of oil.

U.S. West Texas Intermediate (WTI) crude rose 59 cents to 72.83 dollars a barrel. For the same period, analysts expected crude inventories to decrease by about 1.5 million barrels and gasoline inventories to drop by 1.4 million barrels.

Representatives of OPEC and other major oil producers convened May 22 before the group's main meeting next month to review the impact of production cuts.

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Some of the biggest oil-producing nations should step in to ease any supply shortfall should shipments from Venezuela or Iran collapse, IEA Executive Director Fatih Birol said earlier this week.

Gulf OPEC countries start talks on end of OPEC+ cuts