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Saudi Aramco CEO says to sign $50 billion of deals with U.S. companies

CNBC

Vessels pass an oil refinery in the waters off the southern coast of Singapore.

National oil giant Saudi Aramco expects to sign $50 billion of deals with U.S. companies on Saturday, part of a drive to diversify the kingdom’s economy beyond oil exports, Aramco’s chief executive Amin Nasser said.

Nasser was speaking to reporters at a conference of scores of senior U.S. and Saudi business executives, coinciding with the visit of U.S. President Donald Trump to Riyadh.

He said 16 agreements with 11 companies would be signed, including memorandums of understanding for joint ventures. Officials said earlier that many of the agreements would flesh out previously announced plans.

“We expect the deals signed today to provide a boost to bilateral trade between both countries,” Nasser said, adding that Aramco currently spent $6.5 billion a year on goods and services from U.S. suppliers.

Among the deals, executives said, were a plan by Jacobs Engineering Group Inc. for a joint venture with Aramco to manage business projects in the kingdom, and a plan by McDermott International to transfer some of its ship fabrication facilities from Dubai to a new shipbuilding complex which Aramco will build within Saudi Arabia.

Top Saudi economic policy makers, including the finance minister and head of the kingdom’s main sovereign wealth fund, described ways in which they planned to attract U.S. capital and technology. Officials said they aimed to prepare new rules covering direct investment by foreign firms within 12 months.

“We want foreign companies to look at Saudi Arabia as a platform for exports to other markets,” Energy Minister Khalid al-Falih told the conference.

Oil prices slump as DC turmoil weighs on ‘fragile’ sentiment

CNBC

A deepening political crisis in Washington accelerated the decline in prices. Investors became increasingly cautious following the latest reports of links between Russia and the campaign to elect Donald Trump president.

Traders said news that advisers to the president’s campaign last year had at least 18 undisclosed contacts with Russians had unsettled investors. Crude futures turned sharply lower after Reuters reported the news.

“Sentiment is fragile so it does not take much to rock the boat even further,” said Ole Hansen, head of commodity strategy at Denmark’s Saxo Bank. “This is a general risk-off move.”

Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

Jonathan Alcorn | Reuters
Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

Brent crude was down 38 cents at $51.83 a barrel by 9:43 a.m. ET (1343 GMT). U.S. crude oil fell 35 cents to $48.72.

Both benchmarks rose on Wednesday after news of a drawdown in U.S. crude inventories and a dip in U.S. output. The U.S. Energy Information Administration said inventories fell 1.8 million barrels in the week to May 12 to 520.8 million barrels.

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

“Crude stocks are still higher than last year’s stock levels … There is a long way to go before we arrive at five-year average stock levels,” said Sukrit Vijayakar, director of Trifecta energy consultancy.

A surplus of U.S. supply has led to large volumes of crude being exported from the United States to northern Asia, undermining the OPEC-led efforts to tighten the market.

The Organization of the Petroleum Exporting Countries and other producers including Russia pledged to cut output by almost 1.8 million barrels per day (bpd) in the first half of 2016, a deal likely to be extended until the end of March 2018.

Here's why commodities king Dennis Gartman is not buying the surge in oil

Why commodities king Dennis Gartman is not buying the oil surge   

Other producers have been quick to fill any supply gaps.

Shipping data in Thomson Reuters Eikon shows that U.S. crude exports to Asia have soared from a handful of tankers a quarter throughout 2015 and 2016 to 10 tankers in the first quarter of 2017 and that figure is expected to rise.

North Sea oil shipments to Asia have also been at record highs this year, with 19 tankers delivering in the first quarter and a similar amount expected to go to Asia in the second.

OPEC ministers meet in Vienna on May 25 to decide production policy for the next six months and are expected to prolong their agreement to limit production, perhaps by up to nine months.

UBS oil analyst Giovanni Staunovo said he saw a 60 percent probability of OPEC extending output cuts. That should help tighten the oil market and push up prices as demand rises gradually this year, he said.

“Capped OPEC/Russian production with stronger seasonal demand during summer sets the stage for oil prices to reach $60 a barrel over the coming months,” he said.

— CNBC’s Tom DiChristopher contributed to this report.

Oil just dropped to a 5-month low below $46 and analysts say it could go much further

CNBC

  • Benchmark oil futures fell to their lowest levels in five months on Thursday.
  • U.S. crude dropped below $47 a barrel, while Brent breached $50.
  • Analysts see support for U.S. crude around $45 a barrel and then at the $42 level.

Price of oil his 5-month low

Price of oil his 5-month low 

A worker prepares to lift drills by pulley to the main floor of a drilling rig in the Permian basin.

Oil prices plunge to five-month lows 

Oil prices struck a new 2017 low on Thursday as mixed U.S. stockpile data compounded bearishness that has permeated the energy complex in recent weeks.

U.S. West Texas Intermediate crude fell below $46 and international benchmark Brent breached $49, both sinking to the lowest level since Nov. 30, the day the Organization of the Petroleum Exporting Countries agreed to cut output.

Analysts said WTI could eventually decline to $42 now that it broke this key level.

U.S. West Texas Intermediate 3-day performance

The move lower came after the U.S. Energy Information Administration reported a much smaller-than-expected drop in crude oil inventories and another week of soft gasoline demand.

John Kilduff, founding partner at energy hedge fund Again Capital, said there was no one headline moving oil on Thursday. Instead, he chalked it up to more technical trading.

“That $47 level … is huge,” he said.

On Tuesday, oil breached the previous week’s low of $48.20, sparking a round of high-volume, late-afternoon selling.

There is some support around the $45 level, Kilduff said. But if U.S. crude settles below $47 a barrel on Thursday, he believes the contract could plunge to the November lows of $42 a barrel.

Just before noon, U.S. crude broke through a major support zone at $45.90 flagged by Seaport Global Securities earlier in the day. The next critical level is $42.70, the firm said in a morning research note.

Roberto Friedlander, head of energy trading at Seaport Global Securities, pointed to “terrible” demand for refined products, uncertainty around future oil consumption and “what seems like an endless supply of oil.”

An oil well owned and operated by Apache Corporation in the Permian Basin are viewed on February 5, 2015 in Garden City, Texas.

Futures Now: Oil falls on supply data   

Both Kilduff and Friedlander said oil futures appeared to be getting caught up in a broader sell-off in commodities on concerns about Chinese demand.

Thursday’s sell-off appeared to validate the bearish views of technical traders who analyze charts, said Tom Kloza, global head of energy analysis at Oil Price Information Service.

“Chartists have been the smartest guys in the room, and the smartest guys in the room, their charts say expect something in the $45 to $46 range before this whole chapter is all done,” he said.

Investors are looking forward to OPEC’s May 25 meeting, where the exporter group will decide whether to extend its six-month production cut through the second half of 2017. OPEC and other exporters agreed to reduce output by 1.8 million barrels a day late last year.

While OPEC compliance has been good and many expect the group to extend its share of the cuts, global inventories have so far remained stubbornly high, including in the United States.

A Reuters survey indicating that compliance with the output cut deal fell among some OPEC members in April has weighed on oil prices. News of growing output from OPEC member Libya, which is exempt from the deal, also hurt sentiment.

Price of oil his 5-month low

Price of oil his 5-month low 

Oil settles at $48.04

CNBC

Reuters

Oil settles at $48.04, down 20 cents, as US crude stockpiles swell

Oil

Lucy Nicholson | Reuters

Oil prices recouped much of their losses after sliding to almost four-month lows on Wednesday after data showed U.S. crude inventories rising faster than expected, piling pressure on OPEC to extend output cuts beyond June.

The U.S. Energy Information Administration (EIA) said U.S. inventories climbed by almost 5 million barrels to 533.1 million last week, far outpacing forecasts for an increase of 2.8 million.

“A persistent increase in U.S. oil production, together with a rise in imports from Canada, contributed towards a large build in crude oil inventories,” said Abhishek Kumar, senior energy analyst at Interfax Energy in London.

“The market remains nervous about rising U.S. production, which is also reducing the effectiveness of output cuts by the OPEC and some non-OPEC countries,” Kumar added.

A close look at close oil sentiment

A close look at close oil sentiment   

Global benchmark Brent crude futures for May delivery were down 31 cents at $50.65 a barrel by 2:33 p.m. EDT (1833 GMT). The contract fell as low as $49.71.

On its first day as the front-month, U.S. West Texas Intermediate (WTI) crude futures for May settled 20 cents lower at $48.04 per barrel. The session low was $47.01.

Both benchmarks hit their lowest since Nov. 30 when OPEC countries agreed to cut output, and both remained in technically oversold territory. WTI was oversold for the third day in a row, Brent for the second.

A deal between the Organization of the Petroleum Exporting Countries and some non-OPEC producers to reduce output by 1.8 million barrels per day (bpd) in the first half of 2017 has done little to reduce bulging global oil stockpiles.

OPEC, which sources say is leaning toward extending cuts, has broadly delivered on pledged reductions, but non-OPEC states have yet to cut fully in line with commitments.

Trader sees oil reversing course for a rally

Trader sees oil reversing course for a rally   

“OPEC has used up most of its arsenal of verbal weapons to support the market. One hundred percent compliance by all is the only tool they have left and on that account they are struggling,” said Ole Hansen, head of commodity strategy at Saxo Bank.

U.S. shale oil producers have been adding rigs, boosting the country’s weekly oil production to about 9.1 million bpd for the week ended March 10 from an average 8.9 million bpd for 2016, according to U.S. data.

“OPEC’s market intervention has not yet resulted in significant visible inventory drawdowns, and the financial markets have lost patience,” U.S. bank Jefferies said in a note.

But the bank said the market was undersupplied and, if OPEC extended cuts into the second half, inventories would draw down and prices recover above $60 in the fourth quarter.

However, it said U.S. crude production was expected to grow by 360,000 bpd in 2017 and 1 million bpd in 2018, and a price recovery could spur more U.S. shale activity.

Bullish Citi analysts call for crude oil to hit $70 by year end but elsewhere skepticism grows

CNBC

Citi analysts predict crude oil will hit $70 by the end of 2017   

Crude oil prices could shoot up to $70 a barrel by the end of 2017 as supply and demand levels continue to rebalance in coming months, according to analysts at Citi.

Nearer-term, the research team has raised price estimates modestly by $5 to an average $55 per barrel for the first quarter and by $2 to an average $56 per barrel for the second quarter.

Yet investors will likely have to wait a few more months for a more sustained rise, says Citi in the note published Tuesday, as Brent traded up marginally to around $56 in early European trade.

“Oil prices are not likely to stray far from their current $53-58 per barrel range in the near term as record investor net length and bearish inventory data will likely cap prices until more tangible evidence of a tighter market emerges,” write the analysts.

Citi’s research team is looking to the second quarter for positive effects from both the reported 93 percent compliance level of OPEC participants in last November’s production cut agreement as well as substantial refinery maintenance in Asia scheduled for the spring.

However, a close eye must be kept on delivery timetables, David Ernsberger, Global Head of Energy at S&P Global Platts, told CNBC’s Squawk Box on Tuesday.

“There is the shadow looming of new supply coming to market not just from Iran but also from the U.S. and what we’re looking at heading into the second quarter is when will that oil come to market and will it begin to take the edge off prices a little bit,” he noted.

Looking beyond 2017, Citi’s optimism also fades on expectations that increasing numbers of shale producers will be enticed back into the market by more favorable pricing.

However, the impact of shale is hard to accurately predict given the lack of uniformity in the product says S&P Global Platt’s Ernsberger.

“One cargo of shale oil is not like another and you don’t really know what is going to happen when you put it through your refinery until it lands at your port and that’s a little more uncertainty that even the oil refinery industry – which is used to uncertainty – is really willing to embrace right now,” Ernsberger explained.

“So there’s a stability of new supply issue that really needs to get worked out in the next few years,” he added, saying this was the “big story” regarding shale right now.

US shale oil to rise massively in months: Commerzbank

US shale oil to rise massively in months: Commerzbank   

Another prominent concern in the market is the distribution of derivative positioning with record net long positions and a current long to short positioning ratio of around 10:1, with this being a key reason why oil will soon drop to below $50 per barrel, Eugen Weinberg, Head of Commodity Research at Commerzbank, told CNBC’s Street Signs on Tuesday.

Weinberg also argued that the focus on OPEC compliance levels were like a distracting “magician’s show” while the real action is taking place in the U.S., which he claims is on the way to regaining its crown as the world’s largest oil producer.

“OPEC must at some point recognize and understand that they are no more the marginal producers and marginal production will be coming from shale oil so prices will come under massive pressure during this year once investors recognize oil supplies are not going to disappear,” he opined.

“The world is awash with oil at the moment and there continues to be endless supply so therefore I don’t see a real reason for prices to rise above $60 or $70…so I’m really seeing probably the risks of the prices falling below $50 for a considerable period of time and probably even touching the levels of $40 to $45 this year,” he concluded.

US Crude Oil Up 29 cents

CNBC

US crude settles at $53.83, up 29 cents, after US Treasury imposes sanctions on Iran

Oil prices gave up much of their gains after jumping on Friday as the United States imposed sanctions on some Iranian individuals and entities, days after the White House put Tehran “on notice” over a ballistic missile test.

Front month U.S. West Texas Intermediate crude futures settled 29 cents higher at $53.83 a barrel. For the week, the contract was up about 1 percent.

Brent crude futures were up 24 cents at $56.80 a barrel by 2:34 p.m. ET (1934 GMT). Brent was on track to gain about 2 percent on the week, its first significant weekly rise this year.

Volume in U.S. crude futures was relatively low on Friday, with about 335,000 contracts changing hands by 12:15 p.m., on track to fall short of the 200-day moving average for 528,000 contracts.

This is the first move by the administration of President Donald Trump against Iran. It follows his vows during the 2016 campaign to get tough on Tehran.

Shuaiba oil refinery south of Kuwait City, Kuwait.

Iran relationship a black swan for oil?   

Under the sanctions, announced by the U.S. Treasury, 13 individuals and 12 entities cannot access the U.S. financial system or deal with U.S. companies.

A senior U.S. administration said Friday’s sanctions were an “initial step” in response to Iran’s “provocative behavior,” suggesting more could follow if Tehran does not curb its ballistic missile program and continues support for Houthi militia in Yemen.

The news added to volatility in what had already been a day of choppy trading. Analysts said the market is torn between promised cuts from the Organization of the Petroleum Exporting Countries and fears over rising U.S. shale oil production.

“While the market is taking these actions in stride so far as unlikely to result in a larger military conflict that would put Persian Gulf crude oil supplies at risk, the odds of that scenario are certainly higher than a week ago,” wrote Timothy Evans, energy analyst at Citi Futures in New York.

Trump had warned on Twitter that “Iran is playing with fire” after its missile test.

“The ‘trumperament’ of the new U.S. president is being tested by Iran and soon maybe also by Russia and China,” said Olivier Jakob, managing director of consultancy PetroMatrix. “And that is adding some geopolitical support to crude oil.”

Here's how to play a rally in crude

Here’s how to play a rally in crude   

Comments by Russian energy minister Alexander Novak that oil producers had cut their output as agreed under a deal with OPEC, also helped to support prices, analysts said.

Novak said that Russian companies might cut oil production more quickly than required by its deal with late last year. He said that 1.4 million barrels per day (bpd) was cut from global oil output last month as part of the deal.

Oilfield services firm Baker Hughes reported U.S. drillers added 17 oil rigs in the last week. The count has been recovering since June and now stands at 583 rigs, compared with 467 rigs last year.

Analysts said oil’s advance could run out of steam quickly. PVM Oil Associates noted the market “is sandwiched between supportive OPEC-led output cuts and the bearish impact of a resurgence in U.S. crude production.”

The prospect of more oil output from Nigeria and also from other non-OPEC producers such as Brazil also looms.

“Record speculative length threatens to trigger a sharp price fall as unease builds amid the ongoing wait for a conclusive upside breakout,” Commerzbank said in a note.

— CNBC’s Tom DiChristopher contributed to this report.

Oil Rebounds

CNBC

Oil rebounds as US sanctions individuals and entities over Iran missile test

A worker stands next to a pump jack at an oil field Sergeyevskoye owned by Bashneft company north from Ufa, Bashkortostan, Russia.
A worker stands next to a pump jack at an oil field Sergeyevskoye owned by Bashneft company north from Ufa, Bashkortostan, Russia.

Oil prices recovered on Friday after the United States announced sanctions related to Iran’s ballistic missile test, and on signs big oil producers are cutting output.

The Trump administration on Friday rolled out new measures against 13 individuals and 12 entities following Tehran’s ballistic missile test.

U.S. President Donald Trump said “nothing is off the table” in dealing with the country, which has seen its oil exports surge after the lifting of international sanctions last year under the previous U.S. administration.

“The ‘trumperament’ of the new U.S. president is being tested by Iran and soon maybe also by Russia and China,” Olivier Jakob, managing director of consultancy PetroMatrix, said. “And that is adding some geopolitical support to crude oil.”

Shuaiba oil refinery south of Kuwait City, Kuwait.

Iran relationship a black swan for oil?   

Brent crude futures were up 27 cents at $56.83 a barrel by 1:07 p.m. ET (1807 GMT). Brent was on track to gain more than 2 percent on the week, its first significant weekly rise this year.

Front month U.S. West Texas Intermediate crude futures climbed 24 cents to $53.78 a barrel. For the week, the contract is up about 1 percent.

Prices held their gains after oilfield services firm Baker Hughes reported U.S. drillers added 17 oil rigs in the last week. The count has been recovering since June and now stands at 583 rigs, compared with 467 rigs last year.

Comments by Russian energy minister Alexander Novak that oil producers had cut their output as agreed under a deal with OPEC, also helped to support prices, analysts said.

Russia’s Novak said that Russian companies might cut oil production more quickly than required by its deal with Organization of the Petroleum Exporting Countries (OPEC) late last year.

He said that 1.4 million barrels per day (bpd) was cut from global oil output last month as part of the deal.

Prices briefly pared gains after the official start of the day session, reflecting pent-up selling pressure following the U.S. jobs report for January, according to John Kilduff, founding partner at energy hedge fund Again Capital.

“The energy market did not necessarily like the weak wage component of the employment report. Gasoline demand is already weak, due to higher prices, so that hurts energy disproportionately,” he told CNBC.

The U.S. Labor Department reported the United States added more jobs than analysts expected and the unemployment rate ticked up to 4.8 percent.

Here's how to play a rally in crude

Here’s how to play a rally in crude   

News that Norway restarted a field that produces 100,000 barrels per day also weighed on prices, Kilduff said.

Analysts said oil’s advance could run out of steam quickly. PVM Oil Associates noted the market “is sandwiched between supportive OPEC-led output cuts and the bearish impact of a resurgence in U.S. crude production.”

The prospect of more oil output from Nigeria and also from other non-OPEC producers such as Brazil also looms.

“Record speculative length threatens to trigger a sharp price fall as unease builds amid the ongoing wait for a conclusive upside breakout,” Commerzbank said in a note.

— CNBC’s Tom DiChristopher contributed to this report.

US Crude settles at $52.75

CNBC

US crude settles at $52.75, down 43 cents, after EIA reports bearish oil, fuel stockpile data

Build in crude oil inventories

Build in crude oil inventories   

Oil prices fell on Wednesday after earlier shrugging off a report from the U.S. Energy Information Administration that showed the nation’s crude inventories rose and gasoline stocks increased sharply.

U.S. light crude settled down 43 cents at $52.75. Benchmark Brent crude fell 25 cents a barrel to $55.19 by 2:54 p.m. ET (1954 GMT).

Futures fell early in the day after builds in U.S. inventories reinforced expectations that increasing shale output this year would reduce the impact of production cuts by OPEC and other major exporters. However, they turned positive after the EIA report amid market strength.

Again Capital founding partner John Kilduff said there was little to cheer in the report, but oil futures can’t fight the strength on Wall Street on a day when the Dow crossed 20,000 for the first time ever and markets were broadly higher.

“It was a very bearish report, and it’s a cloud over this market, but it’s no asset class left behind at the moment,” Kilduff said.

Trump revives pipelines: Who wins & loses?

Trump revives pipelines: Who wins & loses?   

U.S. crude stockpiles rose by 2.8 million barrels in the week through Jan. 20, matching analysts expectations and roughly in line with an earlier report from the American Petroleum Institute.

U.S. gasoline futures fell to a session low after EIA reported gasoline stocks rose by 6.8 million barrels, compared with analysts’ expectations in a Reuters poll for a 498,000-barrel gain. It pared losses shortly after the report came out.

Distillate stockpiles, which include diesel and heating oil, increased by 76,000 barrels, versus expectations for a 1 million-barrel drop, the EIA data showed.

Oil prices have found support in recent weeks from plans by the Organization of the Petroleum Exporting Countries and other producers to reduce output.

Around 1.5 million barrels per day (bpd) has already been taken out of the market from about 1.8 million bpd agreed by oil majors starting on Jan. 1, energy ministers said on Sunday, as producers look to reduce oversupply.

Bernstein Energy said global oil inventories declined by 24 million barrels to 5.7 billion barrels in the fourth quarter of last year from the previous quarter. The amount remaining equates to about 60 days of world oil consumption.

Bearish on oil for the short term: Pro

Bearish on oil for the short term: Pro   

But as OPEC is cutting, U.S. shale output is rising.

U.S. oil production has increased by more than 6 percent since mid-2016, although it remains 7 percent below its 2015 peak. Output is back to levels reached in late 2014, when strong U.S. crude output contributed to a crash in oil prices.

President Donald Trump‘s promise to support the U.S. oil industry has encouraged analysts to revise up their forecasts of growth in U.S. oil production, which is already benefiting from higher prices.

A push by Republicans in the U.S. House of Representatives for a shift to border-adjusted corporate tax could help push U.S. crude prices higher than global benchmark Brent, triggering large-scale domestic production, according to Goldman Sachs.

— CNBC’s Tom DiChristopher contributed to this report.

US Crude up 29 cents

CNBC

US crude settles at $51.37, up 29 cents as IEA sees oil market tightening

Jonathan Alcorn | Reuters
Oil jack pumps are pictured in the Kern River oil field in Bakersfield, Calif.

Oil prices edged higher on Thursday, but swelling U.S. crude stockpiles limited the rebound from a one-week low after the International Energy Agency said oil markets had been tightening even before cuts agreed by OPEC and other producers took effect.

The IEA said that while it was “far too soon” to gauge OPEC members’ compliance with promised cuts, commercial oil inventories in the developed world fell for a fourth consecutive month in November, with another decline projected for December.

U.S. West Texas Intermediate crude oil settled up 29 cents at $51.37 per barrel, having dropped to a one-week low on Wednesday at $50.91 a barrel.

International benchmark Brent crude was up 34 cents at $54.26 a barrel by 2:33 p.m. ET (1933 GMT), after closing down 2.8 percent in the previous session.

A strong U.S. dollar limited oil’s advance.

RBC strategist: Oil will grind higher

RBC strategist: Oil will grind higher   

Prices tumbled to session lows after U.S. Energy Information Administration (EIA) data showed crude inventories rose unexpectedly last week as refineries sharply cut production.

U.S. commercial crude inventories rose by 2.3 million barrels in the week through Jan. 13 to 485.5 million barrels, well above the expectations of a 342,000-barrel decline.

The data also showed much larger-than-expected increases in stocks of gasoline and a surprise drop distillates inventories. Stockpiles of gasoline in the U.S. East Coast swelled to the highest weekly levels on record for this time of year, when refiners typically begin storing barrels ahead of summer driving season.

“At the end of the day, the focus is on the bigger picture and the bigger picture still looks positive which is why we are still up,” said Scott Shelton, energy specialist at ICAP in Durham, North Carolina.

“The bigger picture includes the OPEC/non-OPEC supply cuts and the IEA report, which was pretty supportive.”

Oil prices have gyrated this year as the market’s focus has swung from hopes that oversupply may be curbed by output cuts announced by the Organization of the Petroleum Exporting Countries and other producers to fears that a rebound in U.S. shale production could swamp any such reductions.

The head of the IEA, Fatih Birol, said in Davos, Switzerland, that he expected U.S. shale oil output to rebound by as much as 500,000 barrels per day over the course of 2017, which would be a new record.Oil and Gas

Futures Now: Oil slips on supply concerns

Futures Now: Oil slips on supply concerns   

It raised its 2016 demand growth estimate, and said the data indicated that rising demand was slowly tightening global oil markets.

Still, analysts warned that keeping the cuts was crucial, particularly as a resilient U.S. shale industry threatened to add more barrels to the market.

“Discipline and strict adherence to the new quotas will be needed probably throughout 2017 and beyond to see the long-awaited and sustainable rebalancing finally arrive,” PVM Oil Associates analyst Tamas Varga said in a note.

OPEC, which is cutting oil output alongside independent producer Russia for the first time in years, wants a lasting partnership with Moscow, Saudi Energy Minister Khalid al Falih told Reuters. He also said extending the deal for a full year if the market rebalances was not needed.

OPEC itself said its cuts would help balance the market, and said its output had already fallen in December. But it also pointed to the possibility of a rebound in U.S. output amid higher oil prices.

US Crude nearly down 2,7%

CNBC

US crude settles at $51.08, down nearly 2.7% on prospect of rising US shale production

A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Nick Oxford | Reuters
A pump jack operates at a well site leased by Devon Energy Production Co. near Guthrie, Oklahoma.

Oil prices fell to their lowest level in a week on Wednesday on expectations U.S. producers would boost output, while OPEC signaled a drop in the global oil supply surplus this year as the producer group’s output fell from a record high.

U.S. West Texas Intermediate (WTI) crude oil futures settled down $1.40, or 2.7 percent, at $51.08 per barrel.

Brent crude futures, the international benchmark for oil prices, were down $1.51, or 2.7 percent, at $53.96 a barrel at 2:34 p.m. ET (1734 GMT).

U.S. shale production is set to snap a three-month decline in February, the U.S. Energy Information Administration said on Tuesday, as energy firms boost drilling activity with crude prices hovering near 18-month highs.

February production will edge up 40,750 barrels per day (bpd) to 4.748 million bpd, the EIA said. In January, it was expected to drop by 5,900 bpd.

Too much OPEC optimism?

Too much OPEC optimism?   

“The petroleum markets have turned lower again in Wednesday trade amid talk that higher oil prices will translate into additional U.S. shale-oil production as a counter-balance to OPEC efforts to trim supply and reduce excess inventories,” Tim Evans, Citi Futures’ energy futures specialist, said in a note.

The Organization of the Petroleum Exporting Countries signaled a falling oil supply surplus in 2017 on Wednesday as the exporter group’s output slips from a record high ahead of a deal to cut supply and outside producers show positive initial signs of complying with the accord.

Under the agreement, OPEC, Russia and other non-OPEC producers have pledged to cut oil output by nearly 1.8 million bpd, initially for six months, to bring supplies back in line with consumption.

However, OPEC, in a monthly report, also pointed to the possibly of a rebound in U.S. output, as higher oil prices following supply cuts by other producers support increased shale drilling.

“OPEC’s regular dose of bullish rhetoric intending to prop up values has begun to wear thin,” Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note

OPEC, excluding Indonesia, pumped 33.085 million barrels per day (bpd) last month, according to figures OPEC collects from secondary sources, down 221,000 bpd from November.

OPEC cut its forecast of supply in 2017 from non-member countries following pledges by Russia and other non-members to join OPEC in limiting output.

Risk in a few years of an oil price shock: Crescent Petroleum

Risk in a few years of an oil price shock: Crescent Petroleum   

OPEC now expects non-OPEC supply to rise by 120,000 bpd this year, down from growth of 300,000 bpd last month, despite an upwardly revised forecast of U.S. supply.

A committee responsible for monitoring compliance with the agreement meets in Vienna on Jan. 21-22.

The output cuts agreed by OPEC and others are likely to come largely from field and refinery maintenance, BMI Research said in a note. It said oil producers are expected to use lower volumes needed for domestic power generation in a bid to maintain export volumes.

“Sticking to output targets is important but export volumes from the participating countries are a much better indicator of how the cuts will affect the market,” it said.

“Participating members are keen not to sacrifice vital export revenue so are trying to find ways to limit domestic crude usage in order to prioritize filling their contracts to foreign refiners.”

Analysts forecast U.S. crude stocks fell by about 1 million barrels in the week ended Jan. 13. The American Petroleum Institute (API) will release its inventory report on Wednesday at 4:30 p.m. EST.