OPEC and non-OPEC countries agreed in November 2016 in Vienna to cut oil production by 1.8 million barrels per day, roughly 2 percent of global oil production, to ease a global supply glut and push up oil prices that dropped below $30 in early 2016 as the situation wa further exacerbated by China's economic slowdown and the USA increasing oil output as a shale oil producer.
-Moody's Investors Service just blamed high oil prices in part for a 0.2 percentage-point cut in its outlook for India's 2018 GDP growth, and warned of the potential of falling consumption spending and rising inflation across the globe if current high prices are sustained.
WTI's discount to Brent widened to as much as $11.57 a barrel, largest since 2015, before narrowing to $10.76 a barrel as both grades retreated.
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Still, the incentive to export means the EIA report also showed a surprise decline of 3.62 million barrels in nationwide inventories. -China trade frictions and European political turmoil.
In addition, Russian Federation and a number of other non-OPEC producers agreed to reduce their crude oil production by an additional 600,000 barrels per day, Kallanish Energy reports. "Going back above $80 is going to be hard".
The drawdown assuaged some worries from USA traders who have watched the West Texas Intermediate crude (WTI) benchmark weaken due to high production levels and signals that OPEC will let its supply-cut pact come to a close. The contract is poised for a 2.3 percent drop this month after an 11 percent rally in the previous two months. July futures expired Thursday after adding 9 cents to $77.59 a barrel. The Bloomberg Dollar Spot Index rose 0.2 per cent.
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OPEC and its allies in the global oil output cuts stressed the need to maintain their cooperation to stimulate adequate investments to ensure stable oil supply.
Since the agreement took effect, global oil markets have tightened, which can be seen in the decline in crude oil and other liquids inventories following sustained increases in quarterly global liquid inventories from mid-2014 through most of 2016, according to EIA.
The major story in the markets at this time is the disconnect between WTI and Brent crude oil. It seems insane to be stressing over oil when Brent is struggling to break through $80 a barrel and West Texas Intermediate is bobbing around $70, about one-third lower than their levels four years ago.
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While physical WTI crude is now at a strong premium to the futures, the opposite is the case when comparing paper Brent crude to the prices of similar physical grades. Surging output and a lack of pipeline capacity in the prolific Permian Basin shale play in Texas is exacerbating swelling US inventories.