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Oil Rises on Expected US Crude Supply Decline

May 30, 2018 at 15:42 by Matt Jackson

A combination of an expected decline in US crude supplies and reports that OPEC will not yet increase its supply has led to a sharp rise in oil prices on Wednesday. Prices had posted five losing sessions in a row, but this looks almost certain to change today with WTI and Brent crude both gaining more than 2% on the day.

It had been widely rumored that OPEC would dial back its oil supply reduction, after the threat of sanctions on Iran and Venezuela had many people concerned that there would be a major supply issue. OPEC is set to meet in June. Press and analyst reports had said that they expected OPEC and Russia to free up some of the oil supply that they had been restricting.

Russia, the world’s largest oil supplier just ahead of Saudi Arabia, is not a member of OPEC but, along with a number of other countries, does send representatives to OPEC meetings. In late 2016 Russia, along with OPEC nations, agreed to cut supply by approximately 1 million barrels per day, in order to help increase oil prices and prevent further price wars. It has been widely reported that they have actually prevented more than 1 million barrels per day from being supplied to the market. In May 2017, the parties agreed to extend the deal until March 2018 and again agreed to extend the deal in December 2017, this time agreeing to cut supplies until the end of 2018. Although there had been calls to further extend the restrictions, rising tensions between the USA and a number of oil producing countries, had caused concern that there would be a supply crisis if Iran and Venezuela were restricted from supplying oil. Rumors surfaced, suggesting that OPEC would agree to meet the shortfall of supply.

According to the most recent reports, however, it is believed that OPEC will not increase their supply, and will stick to the original terms of the deal, at least for the time being.

Prices had already seen an increase in earlier trading, with analysts expecting the American Petroleum Institute to report a reduction in the USA’s stockpile of crude oil.

WTI crude prices, at 16:30 GMT, had risen 2.01% to $68.07. Brent crude had risen 2.23% to $77.17.

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