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US plan to sell oil reserves undermines OPEC supply management efforts

"It's a big week for oil with the OPEC meeting in Vienna taking place on Thursday and the market having already digested news that both Russian Federation and the Saudi's have advocated a nine-month extension". OPEC agreed to slash the output by 1.2 million barrels per day from January 1.

Saudi arrivals in April were down 3.9 per cent from a year ago to 3.96 million tonnes, or about 963,000 bpd, down from the 1.07 million bpd rate in March, customs data showed.

Qatar's energy minister also said on Saturday he was optimistic that extending the cuts beyond June would improve market stability.

“We think we have everybody on board, ” Al-Falih said in an interview with Bloomberg television in Riyadh.

Saudi Arabia's energy minister said on Sunday that extending the supply cuts by a further nine months until next March, and adding one or two small producers to the pact, should reduce oil inventories to their five-year average, a key gauge for OPEC to monitor the success of the initiative.

"The Saudi statement that everyone agreed to a nine-month extension spurred optimism that the cuts will do something to correct the over-supply scenario", Gene McGillian, manager of market research for Tradition Energy in Stamford, Connecticut, said by telephone.

Oil producers inside and outside the OPEC cartel have little choice but to extend their deal from late 2016 curbing output when they meet in Vienna on Thursday, analysts say.




The decision pushed prices back above US$50 per barrel, giving a fiscal boost to major oil producers.

"The expected increase in OPEC's net export earnings is attributed to slightly higher forecast annual crude oil prices in 2017 as well as slightly higher OPEC output during the year", the EIA said.

Under OPEC's deal to remove 1.2 million barrels a day from the market in the first six months of this year, Iran is allowed to grow production to a certain level as it rebuilds its industry following years of crippling sanctions.

The aim was to reduce a glut in global oil supply that had depressed prices. "So maintaining the current discipline of production cuts is key and we expect the current quotas to hold for the most part".

United States production has risen 850,000 bpd from its 2016 lows to 9.3 million bpd now, not far from the all-time record set in 2015 and just shy of Saudi output levels.

United States shale production, which is on target to rise by 440,000 barrels this year, has proven the fly in the ointment of OPEC and Russia's efforts to boost the oil price. He also highlighted that India provided timely payments and honoured all its contractual commitments and demanded due acknowledgment through discount in prices for large volumes that India imports.

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