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Crude Oil Prices Settle Nearly 5% Higher as Traders Cheer Modest Output Hike

CommoditiesJun 22, 2018 02:40PM ET
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Investing.com – WTI crude oil prices settled nearly 5% higher Friday as OPEC's crude output hike was more modest than some producers had hoped, easing investor fears that a wave of crude supply would hold back oil prices.

On the New York Mercantile Exchange crude futures for August delivery rose 4.6% to settle at $68.58 a barrel, while on London's Intercontinental Exchange, Brent climbed 3.4% to trade at $75.55 a barrel.

OPEC agreed Friday to ease crude output limits, paving the way for fresh crude supply to enter the market, reducing the risk of a shortage in global crude stockpiles.

OPEC said it wanted countries –part of the production cut agreement – to increase production, returning to 100% compliance with agreed quotas by 1 July 2018.

The call from OPEC demanding members return to agreed quotes comes as member countries had been cutting output by more than required, pushing compliance 52% above the output curbs agreed in November 2016.

While the oil-cartel appeared reluctant to give specific numbers on quotas, Saudi Arabia said the move would equate into a nominal output rise of around 1 million barrels per day (bpd), or 1% of global supply.

Analysts said, however, that a number of producers in the OPEC-led accord would struggle to increase output, leading to a more modest boost in crude output.

"It is important to note that the market should only see a practical increase of about 600,000 barrels a day as a number of countries in the accord aren't capable of increasing production," National Alliance said.

The deal comes a day after Al-Falih said the production-cut accord – initially agreed in November 2016 – had achieved its goal of rebalancing the oil market, restoring global inventories to the five-year average.

Also helping sentiment on crude prices was a fall in US rig counts for the first time in five weeks, pointing to a possible slowdown in domestic output.

The number of oil rigs operating in the US fell by one to 862, according to data from energy services firm Baker Hughes.

Crude Oil Prices Settle Nearly 5% Higher as Traders Cheer Modest Output Hike
 

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