Oil prices climb for 2nd day as OPEC report shows production drop

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Crude prices jumped on news that the global surplus was shrinking

Oil prices were mixed on Monday, with Hurricane Irma's continued pounding Florida raising demand fears, while US refinery restarts and Saudi cut extension talks gave upward pressure.

Khalid Al-Falih, energy minister for the Saudis, agreed with his Venezuelan, Kazakh, and United Arab Emirates counterparts during a group meeting in the Kazakhstan capital of Astana to consider prolonging production cuts "beyond the first quarter of 2018, if needed". The hurricane forced refineries across the US Gulf Coast to shut down impacting almost 3.3 mbpd of refining capacity as per the EIA data released last week. The oil demand by Gulf Coast refineries has declined in the wake of Harvey, as many operations had to curtail or shut-down production temporarily.

OPEC's oil output dipped in August, the cartel said Tuesday, a sign that supply and demand could be moving further towards balance.

Oil prices rose on Tuesday after OPEC forecast higher demand in 2018 and Russian Federation and Venezuela confirmed their commitment to a production-cutting deal to reduce the global crude glut. Demand is expected to rise by another 1.35 million bpd in 2018 as developed countries consume more oil than initially forecast.

The EIA lowered its US crude output forecast for next year to 9.84 million barrels a day from 9.91 million a day estimated in August, according to its Short-Term Energy Outlook. It's easy to forget, but the journey from $100 a barrel to around half that level started when Saudi Arabia boosted output in 2014 to snuff out the us shale industry.

The impact of Hurricane Harvey, which struck Texas last month, on global oil markets is "likely to be relatively short-lived", the IEA said.

Meanwhile, the report put the country's heavy oil price at $48.7 in August, an increase of $2.69 or 5.8 percent from $46.01 in June.

According to data from secondary resources, the OPEC failed to comply with the agreed production deal for a third consecutive month in August. In other words, the oil cartel hasn't really squeezed the market by cutting output - it's just handed share to arch-rivals.

Information for this article was contributed by Sharon Cho, Wael Mahdi and Jessica Summers of Bloomberg News. The American Petroleum Institute had reported late Tuesday (http://www.marketwatch.com/story/api-data-show-rise-in-us-crude-supply-drop-in-gasoline-stockpiles-sources-2017-09-12) an increase of 6.2 million barrels, according to sources.

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