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Oil prices dip on Trump move to sell strategic reserves

23 May 2017

Iraq's Oil Minister Jabar Ali al-Luaibi met with his Saudi counterpart Khalid al-Falih in Baghdad on Monday to discuss an extension in cuts for crude oil output.

The energy minister was speaking hours before he is due to fly to Vienna for a meeting of Opec representatives.

According to data from Reuters, Brent crude was trading around 0.9 per cent lower late morning in London at just over $53 a barrel.

There's already a consensus within the producers' group that a six-month extension is necessary, Kuwait's Oil Minister Issam Almarzooq told reporters Tuesday before leaving his country for Vienna. Iraq, OPEC's second largest and fastest growing oil producer, has so far voiced support only for a six-month extension.

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Non-OPEC member Kazakhstan has said it would struggle to join any new deal on the old terms, as its own output was set to jump while two other non-OPEC nations Oman and Mexico confirmed their support for a nine-month extension.

OPEC may face another challenge next year in its quest to re-balance the market after U.S. President Donald Trump announced a proposal to sell half of the country's strategic petroleum reserve, which holds almost 700 MMbbl, starting next year.

But this Thursday's frenzy could be even fiercer than usual as Opec-watchers say there's a potential surprise in store.

Saudi Arabia and Russian Federation, the biggest of the 24 producers in the accord - and which don't get on in other areas either - agreed last week that it should be extended until March.

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Saudi Arabia and non-Opec member Russian Federation, the world's top two oil producers, last week agreed on the need to prolong the current deal on cuts, which expires in June, until March 2018, pushing up prices.

Yesterday, Saudi Arabia and Iraq agreed on the need to extend a global cut in oil supply by nine months in an effort to trim the global supply glut and boost crude prices. Further, the reports indicated that the supply cuts would be deepened for purposes of tightening the market and propping up prices. "All I talked to from inside OPEC are supporting the nine months of cuts". Keeping output down will get harder because the tailwinds in the first half of the year - from a seasonal lull in demand to temporary oil-field maintenance - will be gone.

Strong production figures from the United States left the market flush with oil when OPEC members under a previous policy were defending their market share with more oil.

Back on Nymex, June gasoline rose 1.2 cents, or 0.7%, to $1.664 a gallon, while June heating oil added 2.2 cents, or 1.4%, to $1.605 a gallon.

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