Oil prices dip on Trump move to sell strategic reserves

"A nine-month extension is effectively a done deal, but because Russian Federation and Saudi Arabia announced their support for it earlier in the month, the market may be disappointed if Thursday's meeting ends with "just" a nine-month extension, and prices may sell off", Amrita Sen, chief oil market analyst at Energy Aspects Ltd., said in Vienna.

Moreover, Saudi energy minister Khalid al-Falih said in a joint news conference with his Iraqi counterpart, Jabar Ali al-Luaibi, on Monday that Iraq gave the "green light" to a proposal for extending cuts for nine months, according to Reuters.

Iranian Oil Minister Bijan Zanganeh, who clashed with Saudi Arabia in many previous OPEC meetings, has so far kept a low profile, saying extensions of six or nine months were possible.

While oil ministers have a sense of defeat in their battle against high inventories, finance ministers are happy, one OPEC delegate said.

Oil prices fell on Tuesday after US President Donald Trump proposed the sale of half the country's strategic oil reserves, even as producer cartel Opec and its allies cut output to tighten the market.

Should the meeting in Vienna fail to agree an extended cut, traders expect oil prices to fall as this would result in ongoing oversupply. Making deeper production cuts would mean ceding significant market share to new players in the industry like U.S. shale. The sales would generate $500 million in the first year, documents released by the administration showed.

US crude oil inventories fell for the seventh straight week as refiners processed a near-record amount of crude last week, the Energy Information Administration said on Wednesday, even as gasoline and distillate stocks also dipped. The floor collapsed on lingering supply-side strains and weakened demand, though market recovery emerged last week when Russian Federation and Saudi Arabia called for a nine-month extension of the agreement, three months longer than outlined in the original proposal.

By 0750 GMT on Wednesday, Brent crude was up 0.5 per cent at around 54.50 dollars a barrel.

"With higher prices seen in May, it does suggest that the decision for a production cut extension to end-2017 has been priced-in". That already puts American production up there with Saudi Arabia and Russian Federation and cuts further into OPEC's past ability to play a role in setting prices and supplies. The U.S. SPR holds 688 million barrels, making it the world's largest reserve, and a release of half over 10 years averages about 95,000 barrels per day (bpd), or 1 per cent of current U.S. output. And U.S. producers are poised to expand more. Benefiting from a market structure known as contango, in which future oil prices are higher than those for immediate delivery, USA drillers have sold future production in order to finance expanding output.

Algeria's Boutarfa said he believed stocks remained stubbornly large in the first half of 2017 because of high exports from the Middle East to the United States.

But making forecasts is fraught with uncertainty because it depends on assumptions about supply and demand, the rate of exports from storage from producer nations and guesswork about storage in nations such as China, which does not disclose data.

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