Oil holds near $50

File photo: Hasan Jamali.

File photo: Hasan Jamali.

Published Apr 3, 2017

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Seoul - Oil is holding near $50 a barrel as optimism spurred

by OPEC’s output cuts confronts pessimism over rising US supply.

Futures in New York were little changed after rising 5.5

percent last week, the biggest weekly gain since December. While

OPEC Secretary-General Mohammad Barkindo said Sunday that he is

“cautiously optimistic that the market is already rebalancing” and stockpile

levels have started to ease, data on Friday showed the number of rigs drilling

for oil in the U.S. rose to the highest since September 2015.

Barkindo’s comments are bolstering confidence in the

Organization of Petroleum Exporting Countries’ commitment to drain swollen

inventories before the group meets May 25 in Vienna. Kuwait and other producers

from the group joined with non-member Oman to voice support for an extension of

the six-month deal to cut output that began in January. The effects of the

curbs have been undermined by a surge in US supply and production.

“The lower end of oil prices will be protected by OPEC’s

output-cut decision, whereas the higher end will be capped by expanding US

production,” Hong Sung Ki, a commodities analyst at Samsung Futures Inc., said

by phone from Seoul. “While OPEC’s cuts will resonate deeper as demand starts

to pick up in the second quarter, US output may continue to rise until the third

quarter.”

West Texas Intermediate for May delivery was at $50.59 a

barrel on the New York Mercantile Exchange, down 1 cent, at 9:36 a.m. in

London. Prices gained $2.63 last week to settle at $50.60. Total volume

traded was about 40 percent below the 100-day average.

Brent for June settlement fell 5 cents to $53.48 a barrel

on the London-based ICE Futures Europe exchange. The May contract expired on

Friday after falling 0.3 percent to $52.83 a barrel. The global benchmark crude

traded at a premium of $2.40 to June WTI.

See also: OPEC deal pushes Russian oil output down 1.6

percent from peak

OPEC will be “testing the waters” in advance of the

meeting next month to find out what resonates, said Michael Poulsen, an analyst

at Global Risk Management. If the “market doesn’t react, or counter-intuitively

it drops, then they already got the answer whether it makes sense to cut

another six months,” he said.

Rigs targeting crude in the US increased for an 11th week

to 662, the longest run of gains since 2011, according to data from Baker

Hughes. American oil production expanded for a sixth week to 9.15 million

barrels a day in the week ended on March 24, the highest level since February

2016, according to Energy Information Administration data.

BLOOMBERG

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