Oil prices near two-year highs as supply cuts bite
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[October 31, 2017]
By Christopher Johnson
LONDON (Reuters) - Oil prices steadied on
Tuesday after a week of gains as the prospect of increasing U.S. exports
dampened bullish sentiment that has driven Brent to more than two-year
highs above $60 per barrel.
Iraq's move to increase oil exports from its southern ports by 220,000
barrels per day (bpd) to 3.45 million bpd to make up for supply
disruptions from its northern Kirkuk fields also weighed on prices,
Benchmark Brent <LCOc1> was down 10 cents at $60.80 a barrel by 1050
GMT, not far off July 2015-highs reached earlier this week, and up
around 37 percent since their 2017 lows last June.
U.S. light crude <CLc1> was 10 cents lower at $54.05, still near its
highest since February and also not far off its highest for more than
Traders and brokers said investors were adjusting positions after price
rises of around 5 percent in October.
Despite generally upbeat sentiment, some analysts also warned the market
was overbought, having risen too far, too fast.
"U.S. shale output could keep a lid on prices over the medium to
long-term," said Shane Chanel, equities and derivatives adviser at ASR
U.S. light crude has been trading at a discount of around $6.70 to Brent
<CL-LCO1=R> making it attractive to refiners.
U.S. crude production <C-OUT-T-EIA> has risen almost 13 percent since
mid-2016 to 9.5 million barrels per day (bpd).
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A view shows Mellitah oil and gas plant near Zuwarah, Libya, October
10, 2017. Picture taken October 10, 2017. REUTERS/Hani Amara
"The large differential has opened the door on regional arbitrage, driving a
spike in U.S. crude exports over recent weeks," BMI Research said in a note.
Despite Tuesday's price dip, sentiment remained positive, fueled by a pledge by
the Organization of the Petroleum Exporting Countries, Russia and other
exporters to hold back about 1.8 million barrels per day (bpd) in oil production
to tighten markets.
While the actual cuts aren't quite as high as the target, analysts say overall
compliance has been strong.
"The OPEC deal compliance has been very firm, with rates averaging 86 percent
since January," according to Bank of America Merrill Lynch.
The pact runs to March 2018, but Saudi Arabia and Russia have voiced support to
extend the agreement.
OPEC is scheduled to meet officially at its headquarters in Vienna, Austria, on
"The fear of oversupply could easily turn to a fear of undersupply if
inventories keep declining like they have been and demand continues to grow,"
said William O'Loughlin, investment analyst at Rivkin Securities.
(Additional reporting by Henning Gloystein in Singapore; Editing by Louise
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