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Global Oversupply Trim Helps Oil Prices Rise

February 14, 2017 at 18:18 by Andrew Moran

Oil prices are being supported on Tuesday due to the decrease in the global oversupply. Because of the Organization of Petroleum Exporting Countries (OPEC) members cutting their output, the latest reports suggest that the oversupply numbers have been trimmed, while global demand is surging. This is helping oil futures make gains, but the biggest concern among traders is still US production.

March West Texas Intermediate (WTI) crude futures climbed $0.23, or 0.43%, to $53.16 per barrel at 16:53 GMT on Tuesday on the New York Mercantile Exchange. This comes one day after US crude shed 1.3%.

Brent, the international benchmark for oil prices, is also rallying on Tuesday. April Brent crude futures rose $0.37, or 0.67%, to $55.96 a barrel on London’s ICE Futures exchange.

The latest data from OPEC is assisting in the gains made by oil futures. According to the oil cartel, its decline in production has reached a 90% compliance level as the group’s production decreased by 890,000 barrels per day (bpd) to 32.14 million bpd. Experts note that the global oil market could hit a deficit if this rate of reduction persists for the next six months, especially if global demand grows by 1.3 million bpd in 2017, a number projected by OPEC officials.

Some analysts are suggesting that oil producers have to slash their output levels even more if they wish to reduce the oversupply.

Investors are worried about the rising oil production by the US as companies attempt to take advantage of higher oil prices. Officials from the US Energy Information Administration (EIA) reported that US crude production soared to 8.98 million barrels in the week ending February 3, which is the highest level since April 2016. Shale oil production is expected to jump even higher in March. The next EIA report will be released on Wednesday.

If the World Bank‘s forecast of an average price of $55 is correct then US crude production levels could remain high for 2017 and 2018.

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