Published: Mon, May 08, 2017
Finance | By Laverne Griffith

Oil prices rise on expectation of output cut extension

Crude prices staged a mild rebound in the US on Friday to end higher on the day, after sharp losses on Thursday and in Asia on Friday underscored the doubts in the market that a coordinated cut by OPEC and key non-OPEC producers is able to make a real dent in global supplies.

OPEC and other major producers including Russian Federation agreed to cut production by 1.8 million barrels a day in the first half of the year in an attempt to drain large global stocks.

May 8 Saudi Arabia's energy minister has indicated OPEC will extend its current production cuts for at least another six months to the end of 2017 and maybe further.

Oil prices rose on Monday as talk of further supply cuts by major OPEC exporters outweighed the prospect of higher US production as a drilling boom spreads across North America.

USA oil production has gained more than 10 percent since mid-2016 to 9.3 million bpd, close to levels of top producers Russian Federation and Saudi Arabia.

The move dragged market sentiment back in favor of oil prices above $55 per barrel for the first quarter of the year.

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We are discussing a number of scenarios and believe extension for a longer period will help speed up market rebalancing.

"We should expect healthier markets going forward". Most China market observers say the country will remain thirsty for foreign crude but import growth will moderate this year, given the slowing economy and a raft of new rules that crimp the import ability of local refiners. Falih also said that leading indicators showed crude supply-demand was in deficit as the market was moving towards rebalancing.

Global investments in exploration and production have also fallen behind, potentially creating a big supply-demand gap in the next few years, he said.

OPEC agreed to slash the output by 1.2 million barrels per day from January 1. He said he expected inventories in the U.S., which have been the focus of analysts, to trend lower on rising refinery throughput underpinned by seasonality, and on U.S. demand showing signs of continued growth in 2017.

Falih shrugged off talks that the rise of alternative energy could reduce fossil fuel consumption, saying renewables still face hurdles such as affordability.

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