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19 May 2017, 10:41 | Austin Hogan
Oil settled at two-week highs earlier in the week after energy ministers from Russian Federation and Saudi Arabia surprised markets by calling for an extension to an oil production cap agreement.
Both crude oil benchmarks rose on Wednesday after news of a drawdown in USA crude inventories and a dip in us output.
That boosted oil prices immediately after the data, with West Texas Intermediate crude futures bouncing to a high of $49.50/bbl before retreating modestly.
IHS Markit estimates that new wells are producing at twice the productivity levels they once did with the new breakeven price for shale drilling now US$43-$45 a barrel.
OPEC is scheduled to meet on 25 May to decide the production policy and extension of the deal by nine months. Individuals from the Organization of Petroleum Exporting Countries concurred in November to cut 1.2 million barrels a day of oil production. Brent Crude prices on ICE also declined to a five-month low of $46.64 per barrel by May 5.
"The question is whether that 1.8 million barrel cut is enough to cut that overhang".
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On Monday the EIA said that production from seven major US shale plays should jump by 122,000 BPD to 5.401 million in June from the prior month.
Overnight, crude futures settled higher on Thursday, as investors remained optimistic that OPEC would reach an agreement to extend the current supply-cut deal beyond June at its meeting next week.
"In the first quarter of 2017, we might not have seen a resounding return to deficits, but this report confirms our recent message that re-balancing is essentially here and, in the short-term at least, is accelerating", the IEA said.
The drawdown was smaller than expected, and many traders say there is still more oil in the system than the market can absorb.
The world oil supply in 2016 averaged 95.82 mbpd, representing an increase of 0.34 mbd compared to a year ago. "The extension alone should result in deeper cuts", he said, stressing that United States production would stop the rebalancing of the market this year. Its crude exports rose 275,000 bpd in March from February and its stockpiles increased, official data showed on Thursday.
Oil prices have gained support from the supply cut pact but high inventories and rising US production have acted as a brake on the recovery.
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