Oil down as market stays well supplied despite Opec cuts

[LONDON] Oil prices slipped on Thursday as the market remained well supplied with crude despite efforts by Opec and other big exporters to curb production and support prices.

Brent crude was down 17 US cents at US$52.04 a barrel by 0837 GMT. US crude oil was 16 US cents lower at US$48.91.

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

But the US 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 US 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.

But other producers have been quick to fill any supply gaps.

Shipping data in Thomson Reuters Eikon shows that US 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 per cent 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 US$60 a barrel over the coming months."

REUTERS