Oil heads for 2nd week of gains as output cut extension expected

"The battle between bulls and bears is raging on oil", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

A decision will be made at a regular meeting in Vienna on May 25. Since bottoming out in September, however, USA crude oil production has increased by almost 465,000 b/d. EIA information showed distillate stockpiles, which include diesel and heating oil, were down by 1.9 million barrels, versus expectations for a 1.1-million-barrel decline.

"If the production cuts were to be extended, the participating countries would lose further market shares, which they are hardly likely to accept for any length of time", the report said.

Rosneft, the largest oil producer in Russian Federation will meet agreements with the grouping on oil output reductions, the company's chief executive told reporters in Berlin on Thursday.

But the phrase coined by European Central Bank President Mario Draghi five years ago in his successful bid to defend the euro has not had the same dramatic impact on oil. Macquarie Group now thinks production will increase 1.4 million barrels a day through December, up from a previous growth estimate of 0.9 million barrels a day.

A second source said a deeper cut in output was an option depending on estimated growth in supply from non-OPEC producers and USA shale oil.

On Friday the U.S. Commodity Futures Trading Commission said money managers cut their net long U.S. crude futures and options positions in the week to May 16 to their lowest level since November.

The rebound in oil prices from their lows in February 2016 of around $26 a barrel led to a pickup in activity in the US. Prices have since moved lower amid concerns that the surge in U.S. production will undercut OPEC's efforts. Consequently, as soon as the oil prices move upwards of $55 per barrel, it becomes profitable for United States shale producers to operate and produce more.

The oil bulls were further encouraged by the small drop in the U.S. domestic crude oil production, which fell 9,000 barrels per day (bpd) to 9.305 million bpd, the first fall in 13 weeks, which ended the longest stretch of gains since 2012. Breakeven level in the sector is now in the range of $43-45 a barrel. Analysts estimate that every dollar increase in the oil price between $45 and $55 a barrel results in an additional 1.2 billion barrels that become economical to produce. The country's state oil company Saudi Aramco is set to sign investment deals with several USA companies.Iran holds its first round of presidential elections this weekend.

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