Oil prices rose on Thursday, with benchmark Brent crude trading comfortably above $50 a barrel after a fall in U.S. inventories and a bigger-than-expected cut in Saudi supplies to Asia helped tightened the market.
But questions remain about the effectiveness of OPEC-led cuts, with OPEC member Libya saying production now exceeded 800,000 barrels per day (bpd) for the first time since 2014 and could rise to 1.2 million bpd later this year. Consequently, we have raised our view to neutral from bearish and closed our short position.
In March, OPEC announced the possibility that such cuts would be extended.
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Oil prices sank to a five-month low below $44 a barrel in NY last week on concern that the cuts by OPEC and 11 partners, including Russian Federation, aren't clearing the glut and that more supply is coming from US shale drillers.
"Adding to the positive tone was the reduction in imports, which fell back to their long-term average... a sign of the current Opec production cuts beginning to impact exports", he added.
OPEC on Thursday sharply raised its forecast for oil supply from non-member countries in 2017 as higher prices encourage us shale drillers to pump more, hampering the producer group's efforts to clear a glut and support prices by cutting output.
Strong U.S. crude oil production and a previous policy from members of the Organization of Petroleum Exporting Countries to defend a market share with more oil created a glut and helped push crude oil prices to historic lows past year.
However, after Brent fell below $50 a barrel last week, analysts said producers felt forced to act.
Crude inventories fell 5.2-million barrels in the week to May 5, the US Energy Information Administration said.
The increase from Saudi Arabia comes as OPEC and its allies are likely to extend and possibly deepen their current output cut agreement to remove 1.8 million barrels of oil from the market.
Prices surged immediately after the agreement in November, but have come under pressure in recent weeks as USA production has ramped up and pushed back expectations for when the oil market will come into balance.
The decline in gasoline inventories and an increase in United States demand registered for the latest week also helped underpin expectations that demand conditions would hold firm and provide net support to the market.
But how much higher can crude oil prices climb?
Inventories of USA crude fell by 5.25m barrels in the week ended May 5, according to the Energy Information Administration.