Oil Trims Monthly Decline as OPEC Cuts Battle Rising U.S. Output

  • Novak says Russia will reach the agreed 300,000 b/d supply cut
  • U.S. crude production at the highest level since August 2015

The Battle Between OPEC and U.S. Shale

Oil rose in New York, trimming a monthly decline, as OPEC and Russia cite their adherence to output-cut targets in the face of surging U.S. production.

Futures gained 0.7 percent on Friday, while losing 2.5 percent for the month. Russia says it’s on the verge of fully implementing its pledged 300,000 barrel-a-day supply cut. OPEC output in April probably fell by 20,000 barrels a day to 31.72 million, according to JBC Energy. Crude’s rally in the first half of April lost steam on concerns that growing U.S. output threatens to lessen the impact of OPEC’s efforts.

“It feels like the market is getting a little more positive, even though it’s not showing up in prices,” Matt Sallee, who helps manage $17.1 billion in oil-related assets at Tortoise Capital Advisors in Leawood, Kansas, said by telephone. “Russia at least claims they are getting pretty close to where they need to be, so that is very helpful. It seems like there is a greater consensus around the production cuts getting extended.”

U.S. crude production has expanded to the highest level since August 2015, and Saudi Arabia’s Energy Minister Khalid Al-Falih has acknowledged that the first quarter of curbs failed to bring stockpiles below the five-year average. While the Organization of Petroleum Exporting Countries and its allies mull extending their deal past June, U.S. drillers continue to ramp up operations, bringing the rig count to the highest since April 2015.

West Texas Intermediate for June delivery increased 36 cents to settle at $49.33 a barrel on the New York Mercantile Exchange. Total volume traded was about 1 percent above the 100-day average.

Brent for June settlement, which expires Friday, climbed 29 cents to close at $51.73 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $2.40 to WTI. The more-active July contract rose 23 cents to end the session at $52.05.

In today’s "Futures in Focus," Dan Deming of KKM Financial discusses the outlook for oil.

(Source: Bloomberg)

OPEC’s supply cuts have had some success as U.S. crude inventories have fallen for the past three weeks. Global stockpiles increased by less than average during the first quarter and producers’ compliance with the agreed curbs was at 98 percent in March, OPEC Secretary-General Mohammad Barkindo said in Paris Thursday.

The U.S. oil rig count rose for a 15th week, increasing by 9 to 697, according to data published Friday by Baker Hughes Inc. The number of working rigs has more than doubled from a 2016 low of 316 in May.

OPEC compliance has been good, but the question is whether it will stay that way, Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone. “The fact that the Russians aren’t cheating is a good thing and frankly kind of remarkable. On the other hand, you still have a pretty serious inventory overhang.”

See also: Saudi Aramco CEO says peak oil demand is a misleading theory

As prices hover near $50 a barrel, major oil companies are making a comeback.

Exxon Mobil Corp. doubled its quarterly profit, surpassing almost every analyst’s expectations. The 95-cent per-share profit for the first quarter was larger than all but one of the 19 analysts’ estimates in a Bloomberg survey. Chevron Corp. swung to a profit of $2.68 billion in the quarter, compared with a loss of $725 million a year earlier.

The earnings have been “pretty positive. The bar was pretty low last year,” Dan Deming, a manager at KKM Financial LLC, said in a Bloomberg Television interview. “Now, some of these major producers are starting to look at shale as a revenue source, and I think that’s going to continue to be a theme moving forward as well.”

Oil-market news:

  • El Feel oil field said to resume pumping after brief halt, according to a person familiar with the matter.
  • Saudi Aramco Chief Executive Officer Amin Nasser defended petroleum as the mainstay of the global economy, countering theories that demand will peak within years with his own forecast that consumption will keep growing for decades.
  • Saudi Arabia’s oil exports fell 330,000 barrels a day in April compared with March, Geneva-based consultant Petro-Logistics said by email.
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