Oil Makes Limited Gains

Oil prices rose slightly on Tuesday after Saudi Arabia said it would make significant export cuts in July amid signs of a drawdown in US crude inventories, though increasing US output continues to weigh on the market. Brent crude futures were at $48.64 per barrel, up 35 cents, while benchmark US crude was at $46.38 per barrel, up 30 cents, CNBC reported.

Saudi Arabia, the world’s top exporter, is leading an effort by the Organization of Petroleum Exporting Countries, Russia and other producers to cut output by almost 1.8 million barrels per day through March 2018 to prop up prices. During the first half of the year, there were doubts over OPEC’s compliance with its own pledges.

Saudi officials now say they are making real cuts, including 300,000 bpd to Asia for July, although several Asian refiners said they were receiving their full allocation.

“Crude oil is still struggling to rebound,” said Olivier Jakob, strategist at Petromatrix, explaining that the cuts from Saudi Arabia would need to continue beyond summer to have a significant impact.

“They’re making a lot of headlines about reducing supplies but that’s also right in their seasonal pattern of lowering exports in July, August because of domestic needs.”

OPEC’s exports have been falling since the start of the cuts in January, although some members such as Libya and Nigeria are exempt and doubts remain over the compliance of others, including Iraq. Trade data shows OPEC shipments to customers averaged around 26 million bpd in the last six months of 2016, while they are set to average around 25.3 million bpd in the first half of this year.

Threatening to undermine OPEC’s efforts is raising US drilling activity, which has driven up output in the United States by more than 10% since mid-2016, to more than 9.3 million bpd. US crude inventories remain stubbornly high.

Traders on Monday pointed to data from market intelligence firm Genscape estimating a draw of more than 1.8 million barrels at the Cushing, Oklahoma delivery point for US crude futures last week.

“Where oil prices go will be determined by the flow of inventory data,” said Greg McKenna, chief market strategist at Australian futures brokerage AxiTrader. Crude has lost 10% of its value since late May, when OPEC announced it would extend production cuts.