Oil edges higher as Kuwait confirms commitment to cutting output

The development may not be unconnected with a deal between Organisation of Petroleum Exporting Countries (OPEC) and other big oil exporters to cut production, which began on Sunday, in a bid to drain a global supply glut.

OPEC nations, as well as non-members such as Russian Federation and Mexico, have agreed to curb output by about 1.8 million barrels a day. US stockpiles probably fell by 2 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report Thursday. This is a 1.2-million barrel per day production cut.

Oil futures edged higher on Wednesday, rebounding from the prior day’s sharp selloff on signs that major oil producers are sticking to their pledge to cut output.

In oil price news today, WTI crude prices are up 1.5% after the Federal Reserve released minutes from its last meeting in December. Calendar year 2016 started the absolute inventory at around 451 million barrels and the current inventory as on December 23 stood at 486 million barrels, marking an increase of around 35 million barrels. While OPEC member Kuwait has already cut output and non-member Oman said it would follow suit this month, rising production elsewhere could blunt the impact of accords to curb supply. Earlier this year, most forecasts of year-end crude prices envisioned $50/b oil, and this was achieved this month. The United States imported the three largest volumes of crude oil from Canada, Saudi Arabia, and Venezuela. This means producers are looking to lock in future cash flows and sales prices at above $50.

Oil prices dipped on Thursday on doubts producers would fully deliver on promises to cut output, although record US automobile sales and falling crude stocks offered markets some support.

Some analysts estimate that shale oil producers have been so diligent in cutting costs that they are now profitable at an oil price of $US50 a barrel.

Oil should also see limited volatility next year because prices will be insulated from geopolitical risks.

Besides, WTI was buoyed by US auto and truck sales data, which was 3.1 percent up in December hitting a record 17.55 million overall in 2016.

Oil traders and analysts anticipate that heavy-light crude differentials are likely to narrow further this year, although the full extent of the tightening wouldn’t occur until late spring in the Northern Hemisphere, when refinery processing picks up after seasonal maintenance.

At the same time, those austierty measures-a 15.6% year-over-year cut in spending-did help reduce the 2016 deficit, she noted.