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Oil down as market stays well supplied despite OPEC cuts

20 May 2017

Takayuki Nogami at Japan Oil, Gas and Metals National Corp. said: "The stockpile of oil among OECD [referring to the Organisation for Economic Co-operation and Development] countries should be resolved if [the] oil reduction program is prolonged until the end of this year".

At that gathering, the group is expected to agree to an extension of ongoing production cuts for cartel members and other producers such as Russian Federation. General nervousness ahead of OPEC meeting on May 25, may lead to a continuation of the move. Meanwhile, production in the USA has been increasing, threatening to derail the group's goal.

Overall, crude imports from Saudi Arabia rose the highest at 42 per cent to 1.38 million b/d from 970,000 b/d.

"OPEC, the IEA and the US Energy Information Administration all agree that markets should be balancing within the second half of the year".

A technical meeting on Friday of OPEC and non-OPEC countries participating in the supply cut was not expected to result in any decision.

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The US, from being one of the biggest importers of oil is now an exporter. That scenario pushed crude oil prices to historic lows a year ago.

On Friday the U.S. Commodity Futures Trading Commission said money managers cut their net long U.S. crude futures and options positions in the week to May 16 to their lowest level since November.

USA light crude rose 71c to $49,37 a barrel.

Crude oil had a volatile, two-sided session on Thursday, driven lower early in the day by concerns over USA production, but supported enough to trigger a rally in renewed confidence in OPEC's ability to extend production cuts beyond the June deadline.

But more cargoes are flowing right back into its tanks, which can hold 45 million barrels, as sellers struggle to find refiners to buy freshly loaded oil, the traders said.

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OPEC wants oil for immediate delivery to trade at a premium to crude sold for future shipment because the current market structure - contango - benefits the cartel's competition. Both benchmarks were at their highest in about a month, rising more than 2 percent.

The market has not strengthened enough to drain many major storage facilities around the globe - which OPEC oil ministers had hoped would be a first step toward rebalancing what has been a buyer's market since late 2014.

"OECD stocks were up 24.1 million barrels (in Q1 2017) due to a large build in January", BMI Research said. Reports suggests that a time line of 6-9 months is likely to be agreed upon.

"Basically US supply is coming on faster than we anticipated".

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