Oil prices climb on hopes output cuts will be extended

Although the storage trade has been less profitable since the OPEC production cuts, much of that oil remains in tanks, said Chris Bake, an executive committee member at Vitol, the world's largest independent trader, during an industry conference last week in London.

Since the start of March, the Brent price has swung from more than $56 a barrel to less than $47 as opinion has swayed over whether cuts by oil cartel Opec and other producers would offset rising U.S. output.

In order to achieve the target of reducing these stocks to their five-year average over an extended nine-month period of supply cuts, BMI said that inventory drawdowns would have to average 25.6 million barrels per month in the three last quarters of the year.

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. USA crude oil lost $1.02 to reach a low of $48.05 was last trading 55 cents a barrel lower at $48.52. Nothing has been decided yet, but deeper cuts are on the table of discussions, depending on estimates of how fast and how much non-OPEC producers, most notably the USA, would raise supply, according to an OPEC source who talked to Reuters.

Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Sudan, and South Sudan agreed to reduce oil output by 558,000 barrels per day, including Russian Federation by 300,000 barrels per day, starting from January 1, 2017 for six months, extendable for another six months.

The global benchmark for crude oil was up $1.35, of 2.7 percent on the day, at $52.19 a barrel on the news.

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"This should see oil prices remain well bid, as OPEC continues to talk up a continuation of the production cut agreement", it said.

Oil prices have gained support from reduced output but high inventories and rising supply from producers not participating in the accord have limited the rally, pressing the case for extending the curbs.

"OECD stocks were up 24.1 million barrels (in Q1 2017) due to a large build in January", BMI Research said.

But the USA crude drawdown was smaller than expected and the oil market remained extremely well supplied, analysts said.

"For the global crude markets, fundamental demand strength in the coming weeks may have to come from seasonal gains in refining runs in Europe and Asia, led by China - provided that product demand and refining margins remain healthy".

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