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Oil prices build on gains on expectation of extended crude supply cut
June 23 2017, 03:31 | Alonzo Simpson
Oil Tumbles to Five-Month Low as US Production Builds
The declaration carried on the Russian Energy Ministry's website said that the existing deal had had "a significant positive influence" on the market, noting that global inventories of crude had fallen faster than their historical averages in the last five months. The May 25 meeting is when a final decision will be made on the nine-month extension.
OPEC and other major producers have reached a preliminary agreement to extend limits on output, the state-run Kuwait News Agency reported on Sunday, citing a statement by Oman's Oil Minister Mohammed Al Rumhy.
While OPEC ministers will meet May 25 to decide whether to go forward with an extension of their cuts that started January 1, concerns remain about the pace of production growth.
With both Saudi Arabia and Russian Federation, the world's two largest producers, behind an extension, the prolonged cuts appear to be a done deal, even before the May 25 meeting.
The main reason why oil prices remain low is that supply outstrips demand.
The worldwide benchmark for crude oil was up $1.35, of 2.7 percent on the day, at $52.19 a barrel on the news.
Saudi oil minister Khalid al-Falih said Monday the deal extension would have the same volume allocations that were included in the December agreement. Together, they control around 20 million bpd in daily output, equivalent to a fifth of daily global consumption. "Therefore, we came to the conclusion that ending will probably be better by the end of first quarter 2018".
Since Saudi Arabia chose to flood the market with oil in mid-2014, the Saudi Arabian International Reserves Fund has declined by over $200US Billion.
Goldman sees USA crude oil at ~$55/bbl at the end of 2017 and Brent at $57.
It didn't really work, so Opec and a few other producers cut production hoping to revive prices.
USA drilling activity last week rose to its highest in two years, while US production has jumped more than 10 percent since its mid-2016 trough.
Prices are up by 2 per cent since the announcement of the planned extension on Monday, compared with an over 15 per cent jump in the two days following the announcement of the initial cut on November 30, 2016.
It has been concerned with the increase in U.S. shale gas production, and so increased its oil output to drive down prices in a bid to make shale gas exploration economically unattractive. If Russia also sticks to their current production targets (a reduction of more than 300,000 barrels per day), there is a chance we see WTI move into the $60 to $70 range by year-end.