Iraq, Algeria support extension of oil production cuts

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Crude prices were modestly higher during the course of the session on Thursday in Asian trading, building an overnight gains, following a much better-than-expected reports on USA inventories.

Prices surged after the Organization of the Petroleum Exporting Countries agreed in November with some other producing countries to curb supply.

Overall, the cartel expects non-OPEC supply to increase by 0.95 million barrels per day, with the United States alone likely to contribute 0.82 million barrels per day.

Investors, who were previously skeptical of a move by the Organization of the Petroleum Exporting Countries and external producers such as Russian Federation to cut global crude supply by about 2%, have interpreted the drawdown in US stocks as a sign that the cartel's action is working. While oil prices have gained support, higher rival supply is limiting further gains and an inventory glut has proved slow to shift.

Seven million barrels is roughly two days of oil imports into Japan, the world's fourth biggest importer.

"Three months later (after the OPEC-led deal), we see the USA rig count double and it says 'this isn't the only driver in the market any more".

OPEC continued to reduce production in April, but output from top exporter Saudi Arabia ticked up last month.

A weak 10-year note auction sunk demand for US government debt as the prices on benchmark 10-year notes erased earlier gains to trade flat. If OPEC extends its cuts into the second half - as the group has signaled - demand will significantly exceed production, according to the IEA's Head of Oil Industry and Markets, Neil Atkinson.

That means OPEC has complied 111 percent with the plan, according to a Reuters calculation, up from an estimate in March of 104 percent.

Still, Fyfe said stockpiles will probably keep falling even with "a bit of slippage" in OPEC compliance.

However, analysts remained concerned about rising output from the US, Libya and Nigeria and questioned whether the rebound could be sustained. Iraq said it pumped 4.53 million bpd, above its target of 4.351 million bpd.

For the week ending on May 3, crude oil inventories plunged 5.25 million barrels, missing analysts' expectations for a draw of 1.79 million barrels.

Any more supply from OPEC or non-OPEC could return the market to surplus.

Some in the market remain cautious on whether Opec would continue its production pledge beyond this month, with the cartel due to hold its next meeting on 25 May.