Oil jumps as OPEC agrees to modest output hikes
* OPEC to raise output by around 1 mln bpd in nominal terms
* No individual targets for OPEC members
* Production increases to take effect from July 1
* U.S. crude up nearly 5 pct on Cushing drawdown
* Brent premium over US crude at smallest since May 11
(Adds hedge fund and money manager positions, adds
By Jessica Resnick-Ault and Andres Guerra Luz
NEW YORK, June 22 (Reuters) - Oil prices soared on Friday
after oil producers agreed to modest crude output increases to
compensate for losses in production at a time of rising global
The Organization of the Petroleum Exporting Countries and
other top crude producers, meeting in Vienna, agreed to raise
output from July by about 1 million barrels per day (bpd).
The real increase, however, will be around 770,000 bpd,
according to Iraq, because several countries that recently
suffered production declines will struggle to reach full quotas,
while other producers may not be able to fill the gap.
The actual output increases set a bullish tone, as they came
in below some of the highest figures that had been discussed
prior to the meeting.
"There was a lot of anticipation in the market that there
was going to be a lot of new oil coming to market, and that
isn't going to happen, at least for now," said John Kilduff, a
partner at Again Capital.
"We were teased with an increase of about 1.8 million
barrels (per day) at one point, and we ended up getting about
600,000," Kilduff said.
Brent crude settled up $2.50, or 3.4 percent, to
$75.55 a barrel.
U.S. crude rose $3.04, or 4.6 percent, to $68.58 a
barrel, getting an additional boost after a surprise large
drawdown at the storage hub at Cushing, Oklahoma.
Brent crude was up 2.7 percent on the week, while U.S. crude
was up 5.5 percent.
In post-settlement trading, both U.S. and Brent crude
continued to strengthen. Brent rose $2.56 or 3.5 percent to
$75.61, and U.S. crude traded $3.70, or 5.65 percent to $69.23 a
barrel by 4:07 p.m. EDT [1807 GMT].
U.S. crude's discount to Brent <WTCLc1-LCOc1> narrowed by
about 15 percent to $6.36 in the session, making it the smallest
since May 11.
For about three weeks ahead of the OPEC meeting, prices had
retreated from 3-1/2-year highs on fears that larger production
increases could lead to oversupply.
Ultimately, Saudi Arabia persuaded Iran to cooperate with
the plan to cut output, following calls from major consumers to
curb rising fuel costs.
OPEC's decision confused some in the market as the producers
gave opaque targets for the increase, making it difficult to
understand precisely how much more it will pump. The expectation
that the increase will fall short of the 1 million bpd figure
boosted the market.
"The effective increase in output can easily be absorbed by
the market," Harry Tchilinguirian, head of oil strategy at
French bank BNP Paribas, told the Reuters Global Oil Forum.
"You think about 1 million bpd coming back online ... it’s
not going to happen instantaneously, it’s going to take time,"
said Brian LeRose, the senior technical analyst at ICAP.
International marker, Brent, traded above $100 a barrel for
several years until 2014, dropping to almost $26 in 2016 and
then recovering to over $80 last month.
The most recent price rally followed an OPEC decision to
restrict supply in an effort to drain global inventories.
The group started withholding supply in 2017 and this year,
amid strong demand, the market tightened significantly,
triggering calls by consumers for higher supply.
Falling production in Venezuela and Libya, as well as the
risk of lower output from Iran as a result of U.S. sanctions,
have all increased market worries of a supply shortage.
Front-month U.S. crude futures extended their rally during
the session, trading as much as $1.51 a barrel above the second
month contract <CLc1-Clc2>. That was the biggest premium since
August 2014. The spread eased slightly to settle at about $1.00
A large decline in inventories at the storage hub of
Cushing, Oklahoma helped trigger the rally, traders said.
Storage has fallen as Gulf Coast refiners have soaked up
crude that was available at a discount, said Bob Yawger,
director of Energy at Mizuho. The result is lower inventories at
the hub for at least seven weeks, he said.
U.S. drillers cut the number of rigs drilling for oil by one
to 862, the first cut in 12 weeks, according to a weekly report
from GE's Baker Hughes division. The rig count is a
leading indicator of production.
Hedge funds and other money managers cut their bullish
wagers on U.S. crude futures and options to the lowest in nearly
eight months as crude fell 1.4 percent as U.S. production
(Additional reporting by Henning Gloystein in Singapore and
Christopher Johnson in London; editing by Marguerita Choy and
First Published: 2018-06-22 02:35:18
Updated 2018-06-22 22:28:34
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