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Oil Prices Surge in Volatile Session as Saudis Slash Output

January 11, 2017 at 18:26 by Andrew Moran

Oil futures surged more than 3% on Wednesday in a volatile trading session as the Saudis reduced their supplies. The large gains happened despite a US government report that found a bigger-than-expected weekly build in crude and fuel inventories.

February West Texas Intermediate (WTI) crude futures jumped $1.62, or 3.19%, to $52.44 per barrel at 16:55 GMT on Wednesday on the New York Mercantile Exchange. This comes as US crude futures tumbled earlier this week on concerns that the growing number of US oil rigs would offset the production cut of the Organization of Petroleum Exporting Countries (OPEC) members.

Brent is also soaring midway through the second week of trading. March Brent crude futures rose $1.75, or 3.26%, to $55.39 a barrel on London’s ICE Futures exchange.

Wednesday’s gains were attributed to Saudi Arabia’s reduction in crude supplies next month. The world’s top oil exporter had informed many of its Asian customers that it would slash its supplies in February as part of the deal it agreed to with OPEC in November. At the same time, Iraq, which is OPEC’s second-largest oil producer, is raising its crude exports from Basra next month to an all-time high of 3.64 million barrels per day (bpd). Iran, which was exempt from the OPEC agreement, will be raising its exports as it attempts to increase its market share.

OPEC members have arranged to cap their output until the next time they meet in May in Vienna.

As prices stay above $50, North American producers are being incentivized to increase output. US drilling is on the rise, and, according to the Energy Information Administration (EIA), US crude production is projected to increase by 110,000 bpd this year to nine million bpd.

Meanwhile, EIA data suggest that US crude inventories spiked by 4.1 million barrels last week, which topped initial estimates of between 1.2 and 1.5 million barrels. Also, crude stockpiles climbed due to crude imports and refining reached record highs.

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