Oil prices have increased on account of potential supply cuts from the producer cartel Organization of the Petroleum Exporting Countries (OPEC), but record US crude output continues to weigh on prices.
International benchmark Brent crude oil futures increased by 87 cents, or 1.3%, to stand at $67.49 a barrel, while US West Texas Intermediate (WTI) futures rose 50 cents, or 0.9%, to reach $56.96, Reuters reported.
OPEC is expected to begin withholding supply soon, as the group intends to prevent the supply excess seen in 2014 when supply outweighed demand and caused crude prices to crash to a record low.
Earlier this week, sources told the news agency that Saudi Arabia wants the OPEC to reduce crude production by around 1.4 million barrels per day (Mbpd). The producers agreed that the existing market conditions warrant a supply reduction.
Russia has yet to responded to the call made by Saudi Arabia to withhold supplies.
US investment bank Jefferies said: “The Saudis have already indicated they will reduce output by 500,000 barrels per day in December, and early indications are that OPEC will target more than 1Mbpd of production cuts at the next General Meeting on December 6.”
However, Morgan Stanley warned that the proposed reduction from OPEC members would not significantly alter the supply situation.
Morgan Stanley was quoted by the news agency as saying: “The main oil price benchmarks – Brent and WTI – are both light-sweet crudes and reflect this glut.
“OPEC production cuts are usually implemented by removing medium and heavier barrels from the market but that does not address the oversupply of light-sweet.”
The bank added that due to the structural oversupply triggered by record production by several countries, ‘OPEC cuts are inherently temporary (because) all they can do is shift production from one period to another’.
Meanwhile, the US Energy Information Administration (EIA) revealed that US crude oil production hit a record 11.7Mbpd last week.
This represents the biggest weekly build of US crude oil inventories in around two years.
For the week ending 9 November, the US crude stockpiles rose 10.3 million barrels to 442.1 million barrels, the highest level since last December.