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Oil prices inch down on high stocks, weak China factories survey

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"OPEC.effectively said the production cut will be extended, meeting the reality of the restart of a big Libyan oil field and the continued expansion of US shale oil", said Greg McKenna, chief market strategist at futures brokerage AxiTrader, reports CNBC. Prices traded roughly 2.5% higher for the month. Mohammad Barkindo, secretary-general of the Organization of Petroleum Exporting Countries, said last week that all producers are steadfast in their commitment to pare production, and Russia's Energy Minister Alexander Novak said the country will reach its fully agreed 300,000 barrel a day cut as promised.

In their meeting last November, OPEC members unanimously agreed on the oil price of 60 US dollars per barrel, hence they agreed to cut output by 1.2 million bpd down to 32.5 million bpd for the first six months of 2017.

Non-OPEC oil producers such as Azerbaijan, Bahrain, Brunei, Equatorial Guinea, Kazakhstan, Malaysia, Mexico, Oman, Russia, Sudan, and South Sudan agreed to reduce the output by 558,000 barrels per day starting from January 1 for six months, extendable for another six months.

However, in March and April oil prices weakened amid doubts about compliance with the agreement and concerns about rising United States production. An extension to the Opec agreement is becoming increasingly likely. Much of this is attributable to Saudi Arabia cutting production by more than agreed, but there was a high compliance rate among other Opec members as well.

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As a result, overall compliance among Opec and non-Opec members was around 60% during Q1 2017, QNB said.

However, there are also arguments against extending. Russian Federation has achieved around half of its targeted cuts, but others have actually increased production slightly. The lack of compliance with last year's deal among non-Opec producers might make it hard to broker a new deal. The slippage from targeted cuts may have contributed to the recent weakness in oil prices.

"US production is coming back and [President] Trump is doing what..." The contract on Friday increased 36 cents to US$49.33.

State oil giant Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices. Reports of increased production are likely to keep the downside pressure on prices.

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