Oil rises on US inventory draw as Opec beckons

[NEW YORK] Oil prices settled at a two-week high on Wednesday after US crude inventories declined for the sixth straight week, a positive sign for markets ahead of next week's Opec meeting, where major oil producers are expected to extend supply cuts.

Talk that US President Donald Trump could face the threat of impeachment weighed on the dollar, but also helped to lift greenback-denominated oil as it makes it cheaper for buyers in other currencies.

Brent crude settled 56 cents firmer at US$52.21, a 1.1 per cent gain, while US light crude closed 41 cents higher at US$49.07, its highest close since April 28.

The US Energy Information Administration said US crude inventories fell 1.8 million barrels for the week to May 12, less than the of 2.4 million barrels that had been forecast. Petrol and distillate stocks also dropped.

"A triumvirate of draws for crude, gasoline and distillates is a supportive influence for prices," said Matt Smith, director of commodity research at ClipperData.

Even as inventories are drawing down, US crude production has climbed 10 per cent since mid-2016 to 9.3 million barrels per day, close to levels from top producers Russia and Saudi Arabia. That has kept inventories relatively high, with many analysts saying Opec's efforts have not yet borne fruit.

The Organization of Oil Exporting Countries (Opec) and other key producers will gather in Vienna on May 25 to decide whether to extend output cuts of 1.8 million bpd that started in the first half of 2017. Riyadh and Moscow say they should be extended until March 2018.

"The recent stance of Saudi Arabia and Russia on supporting an extension of the production cut deal by another nine months is favouring oil prices," said Abhishek Kumar, senior energy analyst at Interfax Energy's Global Gas Analytics in London.

He cautioned, however, that the market may expect deeper cuts to keep prices elevated, particularly with US production still rising.

The EIA forecasts US production to average nearly 10 million bpd by the end of 2018.

Jefferies analysts lowered their oil price forecasts due to the rise in US production, cutting its Brent price estimate for the second half of 2017 to US$59 per barrel from US$61 previously.

Libya also plans to restart production. In an interview with Reuters, the national oil company chairman said the company has returned to parts of the Sirte basin for the first time in more than two years.

REUTERS