Published: Sun, December 02, 2018
Markets | By Otis Pena

U.S. Oil Production Surge Keeps Pressure on OPEC+ to Cut Supply

U.S. Oil Production Surge Keeps Pressure on OPEC+ to Cut Supply

Both contracts are up about 1 percent this week, the first weekly gains in nearly two months. Losses were limited on Friday, however, on hopes of a production cut agreement.

The global benchmark, Brent crude, steeply increased on the same day to $59.26 per barrel after closing at $58.12 last Wednesday. USA crude dropped 52 cents, or 1 percent, to $50.93 a barrel.

That the Organization of the Petroleum Exporting Countries (OPEC) received an official advisory to cut production doesn't necessarily mean cutbacks will take place after the cartel meets in Vienna next month; in fact, experts portray the impending summit as "the toughest test yet" for key parties.

Russian Minister of Energy Alexander Novak earlier on Friday said that he was comfortable with prices where they now are, adding to uncertainty about what top oil exporters can agree on. The oil production of Russian Federation has also reached above 11 Million bpd in the past few months. Tehran threatened to block supplies of oil to the world by shutting the Strait of Hormuz.

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The weakness in sentiment is visible in the Brent forward price curve, which now has prices for future delivery above those for immediate dispatch, a structure known as "contango", which can make it attractive to put oil into storage.

Trading action was also held in check ahead of weekend meetings of the Group of 20 in Argentina, where oil talks are expected take place on the sidelines, ahead of an official meeting on December 6 between OPEC and its allies.

Surging oil production in the United States, Russia and by members of the Middle East-dominated OPEC has helped fill global inventories and create a glut in some markets. CME Group's OPEC Watch Tool pegs the probability of a “small production cut” at 52%, with expectations for “little or no change” at almost 48%.

The oil reserves in the US increased by 3.6 million barrels in the week to 23 November to 450,49 million barrels, according to the worldwide energy Agency. The market sentiment has shifted from a 70 percent expectation of a small production cut earlier this week to about a 56 percent chance on Friday, CME Group said.

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