We're winning battle to curb oil glut, says OPEC

Turkish and Iraqi soldiers walk with Turkish tanks during the exercises in Silopi near the Habur border gate with Iraq southeastern Turkey Tuesday Sept. 26 2017

We're winning battle to curb oil glut, says OPEC

West Texas Intermediate, the USA benchmark, rose $1.03, or 2.03%, to $51.69 a barrel on the New York Mercantile Exchange.

US crude inventories likely rose by 2.3 million barrels last week, a preliminary Reuters poll showed ahead of data by American Petroleum Institute (API). Brent crude dipped 0.09% to $56.37 a barrel.

On the whole, fundamentals are now slowly turning supportive for oil prices as supply has started to flatten at a time when demand remains robust.

Earlier this month, the International Energy Agency (IEA) noted that global oil demand grew very strongly year-on-year in the second quarter and revised up its forecast for oil demand growth for 2017 to 1.6 million bpd from 1.5 million bpd.

"It's all driven by the idea is that the production cut is starting to work and the rebalance is underway", says Gene McGillian, director of market research at Tradition Energy, even as concerns about us production growth widened the discount of WTI to Brent crude to the highest since August 2015.

"If the Turks made a decision to cut crude flows, it would create a shock which markets are now pricing in", said Hussein Sayed, chief market strategist at FXTM.

The Organization of the Petroleum Exporting Countries (OPEC), Russia and several other producers have cut production by about 1.8 million barrels per day (bpd) since the beginning of this year, helping to lift oil prices by about 15 per cent in the past three months.

Benchmark Brent crude rallied to an eight-month high last week, but the OPEC/non-OPEC producers in a historic deal to curb output can not afford to be complacent.

On Friday, the Organisation of the Petroleum Exporting Countries and other producers will meet in Vienna to discuss the progress of their deal to limit output. If shale producers respond with increased investment and stronger output growth, it will be a clear indication that it is their price needs, not those of Opec countries, that will determine some sort of equilibrium around which oil prices will fluctuate.

The major oil producers' production cut deal has supported crude oil prices since November 2016.

"A little bit of OPEC rhetoric leaned toward the friendly side with the potential-slash-possibility of an OPEC extension, and maybe being able to reel the Nigerians and Libyans in a little bit". At that time of the season, demand is lower than in the summer, and ending the cuts in March-ahead of peak demand-could exacerbate the glut that OPEC and friends have been fighting this year. And it seemed nothing could stop the relentless increase in USA output.

Brent crude shot up to its highest level in over two years on Monday after Turkish President Recep Erdogan threatened to cut off the pipeline that brings oil from northern Iraq to markets.

Even so, there are signs that the market is now coming into balance.

Intensive refining activity over the next few months as refiners try to stabilise and rebuild fuel stocks should ensure strong demand for crude. That should narrow the difference between the two crude benchmarks, the analysts added. WTI futures rose 2.63%, or $1.33, to $51.99/Bbl. It rose 2.2 percent last week.

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