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Oil slips but holds most gains on expected OPEC cuts

CommoditiesOct 19, 2017 07:44AM ET
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© Reuters. FILE PHOTO: The Philadelphia Energy Solutions oil refinery is seen at sunset in front of the Philadelphia skyline

By Christopher Johnson

LONDON (Reuters) - Oil prices slipped on Thursday but held onto most recent gains, supported by OPEC-led supply cuts, tension in the Middle East and lower U.S. production.

Brent crude (LCOc1) was down 75 cents at $57.40 a barrel by 1135 GMT, still around 30 percent above mid-year levels. U.S. light crude (CLc1) was 65 cents lower at $51.39, almost 25 percent higher than its lows in June.

Analysts said some investors were taking profits after two weeks of gains but upward momentum remained strong.

"The oil market is tightening gradually," said Tamas Varga, analyst at London brokerage PVM Oil Associates.

"OPEC is expected to roll over output restrictions for another nine months, supplies are at risk in the Middle East and U.S. inventories are falling."

The U.S. Energy Information Administration said on Wednesday that U.S. crude inventories fell by 5.7 million barrels in the week to Oct. 13, to 456.49 million barrels.

U.S. output slumped by 11 percent from the previous week to 8.4 million barrels per day (bpd), its lowest since June 2014 as production was shut in by a hurricane.

Instability in the Middle East has increased risks to supply from key oil-producing areas.

"The 'Fragile Five' petrostates - Iran, Iraq, Libya, Nigeria and Venezuela - continue to see supply disruption potential, with northern Iraq crude exports at risk due to an escalation of tensions between the (Kurdistan Regional Government), Baghdad and Turkey, while the United States has decertified the 2015 Iran nuclear deal," U.S. bank Citi said.

Iraqi Kurdistan's oil exports more than halved to 225,000 bpd on Wednesday as the Iraqi military retook some of the biggest fields from Kurdistan's Peshmerga forces.

"Geopolitical risk has returned to the oil market ... As a result, we have raised our ICE Brent forecast for 4Q17 from $45 per barrel to $52," Dutch bank ING said on Thursday.

U.S. President Donald Trump last week refused to certify Iran's compliance over a nuclear deal, leaving Congress 60 days to decide further action against Tehran.

During the previous round of sanctions against Iran, around 1 million bpd of oil was cut from markets.

Analysts say crude supply should keep tightening if the Organization of the Petroleum Exporting Countries and partners, including Russia, extend as expected a deal to curb production through next year.

"OPEC is desperate to bring the market into equilibrium," said Shane Chanel at ASR Wealth Advisers.

Oil slips but holds most gains on expected OPEC cuts
 

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