Oil prices surged on Tuesday in the global markets following speculations that the world's largest producer, Saudi Arabia is pressing for more supply cuts as members of the Organisation of Petroleum Exporting Countries and its allies (OPEC+) converge this week on Vienna, Austria.
WTI and Brent crude oil futures are extending their gains after the EIA reported a 4.9 million barrel draw down.
West Texas Intermediate, the benchmark United States crude, was trading at around $ 56 on Wednesday afternoon, and its price followed a similar course throughout the year.
The surprising ultimatum which reeks of what Saudi Arabia did in November 2014 when it effectively dissolved the cartel, and flooded the world with oil in hopes of putting shale producers out of business only to fail miserably as it never accounted for cheap money and the stupidity of U.S. junk bond investors, comes one day ahead of a gathering between OPEC and non-OPEC nations including Russian Federation on Thursday and Friday in Vienna.
Many experts concur that the group, dubbed as OPEC+, will make deeper cuts to the current oil production level to boost crude oil prices.
But some nations such as Iraq have been ignoring the agreement and producing more than their allotted amount.
JP Morgan said it expected producers to agree cuts of 1.5 million bpd to the end of 2020 - an increase of 300,000 bpd - as Saudi Arabia needs oil prices in the area of $60-70 per barrel.
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But U.S. production keeps rising, filling the gaps left by OPEC, with output in September increasing to a new record of 12.46 million barrels per day (bpd), the U.S. government said in a monthly report on Friday.
"Iraq has surpassed its production target this month every month", said Rousseau.
"Ongoing concerns over the global economy and the US-China trade war continue to weigh on prices but US crude inventories are expected to have declined last week which may lend some support", Phil Flynn, analyst at Price Futures Group in Chicago, said in a note.
Meanwhile, Russia, which is not part of OPEC but has been following its lead on production limits in recent years, has indicated it wants its oil production re-calculated in a way that's in line with OPEC nations.
The stakes for Riyadh are huge: the (N) OPEC spat comes as Saudi Arabia is finalizing the IPO of its national oil company, Aramco, and hopes to bring the company public at the highest possible price, however that also needs a much higher oil price.
While OPEC may cut output, U.S. producers have been only too happy to meet any market shortfalls, with production setting successive records. The article said, "Saudi Arabia will no longer compensate for other members non-compliance".
"If something goes awry with Saudi production in the next few months, and there's a fairly good chance something will happen".