Oil rose on Tuesday as expectations of an extension to OPEC-led supply cuts supported prices, reversing losses earlier in the session after a White House proposal suggested selling off half the country’s huge oil stockpile.
Brent crude LCOc1 traded up 7 cents at $53.94 per barrel at 1348 GMT (9:48 a.m. ET), after a low of $53.20. U.S. light crude CLc1 was up 10 cents at $51.23. The Organization of the Petroleum Exporting Countries, led by Saudi Arabia, and other producers including Russia meet on May 25. They are expected to extend a pledge to cut output by 1.8 million barrels per day (bpd), possibly until March 2018.
The cuts were initially agreed to last six months until the end of June. An oil pump is seen operating in the Permian Basin near Midland, Texas, U.S. on May 3, 2017. Picture taken May 3, 2017. REUTERS/Ernest Scheyder
Kuwaiti Oil Minister Essam al-Marzouq said on Tuesday not all OPEC countries and its allies supported a nine-month extension and producers would discuss this week whether to extend output cuts by a six or nine months. But other delegates told Reuters they predicted a smooth meeting with a nine-month extension likely to be agreed.
“OPEC meets on Thursday amid increasing optimism that the production cuts agreed last November will be rolled over and most likely to the end of 1Q18,” Colin Smith, analyst at Panmure, said in a note on Tuesday, adding he expected a rollover would “likely deliver a significant tightening of the market.”
Earlier in the session oil prices dropped on the White House plan to sell off half of the nation’s 688 million-barrel oil stockpile from 2018 to 2027 aims to raise $16.5 billion and help balance the budget. The budget, to be delivered to Congress on Tuesday, is only a proposal and may not take effect in its current form.
“Congress needs to agree to this which is rather uncertain,” said Carsten Fritsch, commodity analyst at Commerzbank. “But of course, it could weigh on the back end of the forward curve.” Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore, said the White House proposal was a surprise, but that over a 10-year period the sales would only average around 95,000 bpd.
“It’s not huge, but it won’t help Saudi efforts,” he said. Releasing reserves would add supplies to already high and rising U.S. production C-OUT-T-EIA. Goldman Sachs has already warned of “risks for a renewed surplus later next year if OPEC and Russia’s production rises to their expanding capacity and shale grows at an unbridled rate.”