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MW: Oil producers may keep output lower for longer, say traders
 
Oil producers’ efforts to cut production have fallen short of draining the overhang of stocks to the level they were targeting, meaning cuts are likely to go on longer, oil traders said.

The Organization of the Petroleum Exporting Countries is facing a familiar dilemma: limiting its own production to bolster world prices enough that the sacrifice is compensated sufficiently and stored oil CLK7, +0.77% is sold, while knowing that rival producers outside of the deal are pumping more in response.

Read: Russian ruble hits 18-month high

“Wrestling with that equilibrium, balance, is something that is going to prove testing for those OPEC producers which need a high oil price to balance their budgets,” said Mike Muller, Vice President of crude oil trading at Royal Dutch Shell.


OPEC’s members will meet on May 25 and decide whether a deal to cut 1.2 million barrels a day of output for the first six months of this year should be extended. The cartel had said they wanted stored oil levels to fall by about 300 million barrels. But U.S. stocks, seen as a bellwether for global stocks, hit an all-time high on Wednesday, weekly data published by the U.S.’s Energy Information Administration showed.

Read: Oil prices rise to session highs as EIA reports drop in U.S. gasoline supplies

Oil prices soared by around 20% in the weeks following OPEC’s announcement on Nov. 30, only to drop back to around $50 a barrel this month as doubts grew over the cartel’s effectiveness in reducing global stock levels.

Traders speaking at the FT Commodities Global Summit said that although some oil was being sold out of the most expensive storage, such as oil stored on ships at sea, U.S. stocks remained stubbornly high.

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