Explainer: The Dakota Access Pipeline faces possible closure

By Devika Krishna Kumar and Stephanie Kelly

(Reuters) – A U.S. court could order the Dakota Access Pipeline (DAPL) shut in coming weeks, disrupting deliveries of crude oil, and making nearby rail traffic more congested.

WHAT IS DAPL?

The 570,000-barrel-per-day (bpd) Dakota Access pipeline, or DAPL, is the largest oil pipeline out of the Bakken shale basin and has been locked in a legal battle with Native American tribes over whether the line can stay open after a judge scrapped a key environmental permit last year.

A federal judge ordered the U.S. Army Corps of Engineers to update the court on its environmental review of the pipeline by May 3 and decide if it believes the line should shut during the process.

WHAT IS THE DISPUTE?

Native American tribes long opposed to DAPL say the line endangers Lake Oahe, a critical water source. Pipeline construction under the lake was finished in early 2017 and the line is currently operating. But a judge last year vacated a key permit allowing that service, raising the possibility that the line could close while a thorough environmental review was completed.

Dakota Access oil pipeline’s operators plan to ask the U.S. Supreme Court to intervene, according to a court filing last week.

WHAT ARE THE CHANCES THAT THE LINE WILL CLOSE?

So far, the U.S. Army Corps of Engineers has not requested the line to be closed, even after the federal permit was canceled. It expects to complete the environmental review by March. Market analysts believe there is some chance the judge orders the line closed, and there is concern about the disruption that would cause.

WHAT WILL OIL PRODUCERS DO IF THE LINE IS CLOSED?

The U.S. shale boom created more demand for rail transport of crude in North Dakota, the second-biggest oil producing state in the country. Outbound rail traffic rose by almost 300% between 2002 and 2015, a North Dakota Department of Transportation report showed.

However, rail is expensive and takes longer to ship, making pipelines the preferred shipping method. If DAPL were to shut, producers would be pushed toward crude by rail again, BTU Analytics said.

WHAT COULD HAPPEN FOR FARMERS IF THE LINE IS SHUT?

If shippers divert oil shipments onto railcars, it will create transport bottlenecks in the region, especially in North Dakota, which relies on rail to transport over 70% of its agricultural production, economists and industry sources said.

“Probably more grain would be piled on the ground until the time it could be moved by rail,” said Jeff Thompson, a farmer in South Dakota and a director of the South Dakota Soybean Association, which supports DAPL.

In 2019, North Dakota led the nation in the production of all dry edible beans, canola, durum wheat, and spring wheat. The state is a captive rail market, which means there are no other economically viable options to deliver agricultural products, said Stu Letcher of the North Dakota Grain Dealers Association.

ARE RAILROADS PREPARED?

Railroads have improved load capacity over the last decade in response to past constraints, said Bill Wilson, professor at North Dakota State University and a member of the North Dakota Soybean Council.

“I would be surprised that, if DAPL was shut down, that the railroads were not capable of handling that added business,” Wilson said.

BNSF Railway, which operates the greatest number of route-miles in North Dakota, is prepared to handle any increase in rail traffic if the DAPL is shut, the company said.

The other major railroad serving the region, Canadian Pacific Railway Ltd, is committed to delivering for customers across all businesses, said spokesman Andy Cummings.

(Reporting by Devika Krishna Kumar and Stephanie Kelly in New York; Editing by Aurora Ellis)

Clean crude? Oil firms use offsets to claim green barrels

By Timothy Gardner, Nerijus Adomaitis and Rod Nickel

(Reuters) -In January, Occidental Petroleum announced it had accomplished something no oil company had done before: It sold a shipload of crude that it said was 100% carbon-neutral.

While the two-million-barrel cargo to India was destined to produce more than a million tons of planet-warming carbon over its lifecycle, from well to tailpipe, the Texas-based driller said it had completely offset that impact by purchasing carbon credits.

Such credits are financial instruments generated by projects that reduce or avert greenhouse-gas emissions such as mass tree plantings or solar power farms. The projects’ owners can sell the credits to polluting companies, who then use them to make claims of offsetting their carbon emissions.

Details of the Occidental transaction have not been previously reported. Two sources involved in the deal told Reuters that the driller paid about $1.3 million for the credits – or about 65 cents per barrel. Oil currently sells for more than $60 a barrel.

Occidental says such credits make the two-million-barrel cargo carbon-neutral because they represent an equivalent amount of greenhouse gas removed from the atmosphere by the projects generating the credits.

The arrangement reflects a growing trend. Oil-and-gas companies worldwide are increasingly trying to market their products as cleaner using a range of controversial methods, including buying credits, powering drilling operations with renewable power and investing in expensive and commercially unproven technology to capture and store emissions.

The moves are designed to secure a future for the fossil fuel industry in a world where investors, activists and regulators demand action to stop climate change. In some cases they are also designed for profit: Companies have begun seeking a premium price for what they call cleaner petroleum products.

Although carbon credits do nothing to reduce the pollution from a given barrel of oil, proponents of offset programs argue that credit purchases help finance clean-energy efforts that otherwise would not be profitable.

Critics blast such programs as smoke-and-mirrors public relations efforts that allow polluters to scrub their image while they continue to profit from climate damage.

Oil company claims of clean fuels through offsetting are like “a tobacco company saying they sell nicotine-free cigarettes because they paid someone else to sell some chewing gum,” said David Turnbull, a spokesman for Washington-based Oil Change International, an advocacy group opposing fossil fuels.

NO CLEAR STANDARDS

National and global carbon credit programs establish guidelines that projects must follow to in order to sell offsets. The programs rely on companies and nonprofit organizations such as Verra and SustainCERT to issue and verify credits under their standards. They certify that the projects generating credits are leading to the promised amount of reduced emissions and would not have been built without the credit income.

But there are no uniform standards for how to calculate the full climate impact of fossil fuels, or how to properly offset it with environmental projects, industry experts say. Companies buying credits are also not obliged to disclose their cost or origin – a problem because they can vary widely in price and quality.

In Occidental’s case, the credits were generated between 2016 and 2019 by solar, wind and other clean-energy projects in emerging economies such as India, Thailand and Turkey, and were verified by Verra.

“The credits they issued are valid and have environmental integrity,” said Verra spokeswoman Anne Thiel.

Verra and other verifiers, however, have since stopped approving renewable energy projects in those nations to generate offsets after concluding last year that they had become competitive enough to be built even without offset credit revenue.

Occidental defended the deal, saying it could kick off a new market for oil offset with credits that directs money to green-energy projects. “We can be a big part of the global solution,” said Richard Jackson, Occidental’s president of operations for onshore resources and carbon management.

TREES IN SPAIN

Occidental and the cargo’s buyer, India’s Reliance Industries, did not comment on whether Reliance paid a premium for the shipment.

But other oil-and-gas companies are eager to create a market where climate credentials allow them to command higher prices. That could allow them to recoup the full cost – or more – of credits or other measures that allow for the low-carbon labeling.

Lundin Energy, an independent driller with operations in Norway, is one of the companies that sees a market opportunity in crude with a low-carbon designation.

The company plans to spend $35 million to plant 8 million trees in northern Spain and Ghana – something it says will allow it to generate its own credits to offset greenhouse gas emissions from its fossil fuels.

Lundin was the first oil company in the world last year to receive independent certification it was producing low-carbon oil based on its reduction of emissions in producing oil from its Edvard Grieg field in Norway. It also aims to certify low-carbon oil from the Sverdrup field, also in Norway – Western Europe’s biggest – which Lundin co-owns with a consortium of partners.

Cleaner drilling operations, however, have a limited environmental benefit. At least 80% of greenhouse gases from oil are emitted after extraction from the ground, according to consultancy IHS Markit.

Alex Budden, Lundin’s Vice-President, said if buyers paid a 1% premium for lower-carbon barrels, it would boost the company’s annual oil revenue by $10 million to $20 million. That would allow it to recover the costs of its offset and efficiency efforts and eventually profit from them.

So far there have been no takers. “But it’s going to happen,” Budden said.

GREEN OIL SANDS?

Across the Atlantic, Canadian producers in the oil sands have a bigger challenge. Producers there emit three to five times more carbon than the worldwide average because more energy is needed to extract the oil, according to Rystad Energy, a global consultancy. Its producers are hoping to change that.

Suncor Energy, for example, has pledged to cut the amount of carbon it emits per barrel produced 30% from 2014 levels by 2030 to contribute to Canada’s climate goals and address shareholder pressure to reduce its emissions.

It will do so by improving energy efficiency and investing in renewable energy technologies, such as wind farms, said Chief Sustainability Officer Martha Hall Findlay. She said Suncor will consider certifying those lower-carbon barrels.

“There’s no question carbon is our Achilles heel in the oil sands,” she said.

Liquefied natural gas producers are also increasingly marketing carbon-neutral LNG. Unlike in the oil market, some LNG buyers are already paying a premium for such cargoes.

In March, for example, Shell announced it had taken delivery of Europe’s first ever carbon-neutral cargo of LNG from Russian supplier Gazprom. Gazprom provided the gas and both companies chipped in for the offsets, said Mehdi Chennoufi, Shell’s head of LNG Origination and Business Development.

Shell said the credits came from projects that protect biodiversity or restore land, but it would not disclose the cost.

Buyers in Spain, Japan, Taiwan and China have also bought LNG certified as carbon-neutral, a trend that has led the International Group of LNG Importers, an association of big global LNG companies, to start working on standardized methodology.

“Today there is a lot of talk about carbon-neutral LNG, but there is no universal definition,” said Vincent Demoury, the group’s Deputy General Delegate.

Climate activist Andy Gheorghiu said the notion of carbon-neutral liquefied natural gas is like “vegan pork sausage.”

“It’s just nonsense,” he said.

Other companies are turning to carbon-capture technology – despite its history of high costs and operational difficulties – to offset their products’ climate impact.

Qatar, the world’s biggest LNG producer, announced in February that it is building a carbon-capture project at its North Field expansion project in the Persian Gulf.

Occidental is also developing the largest-ever direct-air-capture facility, to pull 500,000 tonnes per year of carbon dioxide out of the open air near some of its Texas oil fields, using fans and chemical reactions. That’s equal to the annual emissions from nearly 110,000 U.S. cars.

Environmentalists criticize such projects because they could extend the life of the fossil fuel industry.

If Occidental’s project works, for example, the company plans to pump the carbon back into the Texas oil fields, raising reservoir pressure to extract more crude.

Occidental says it hopes to market crude oil produced in this way as the feedstock for refining jet and marine fuel – providing a way for those industries to claim they have offset their emissions.

Marion Verles, Chief Executive Officer at SustainCERT, the credit verifier, said such offset schemes can help reduce overall greenhouse-gas emissions – but could also backfire.

Telling consumers they can consume carbon-neutral fossil fuels sends the message, she said, that “behavioral change is no longer needed.”

(Additional reporting by Shadia Nasralla, Nina Chestney, and Susanna Twidale in London; Kate Abnett in Brussels; Isla Binnie in Madrid; and Nidhi Verma in New Delhi; Editing by Richard Valdmanis and Brian Thevenot)

Oil prices slip as Hurricane Laura makes Gulf Coast landfall

By Ahmad Ghaddar

LONDON (Reuters) – Oil prices fell on Thursday as a massive hurricane in the Gulf of Mexico made landfall in the heart of the U.S. oil industry, forcing oil rigs and refineries to shut down.

Brent crude futures for October, which expire on Friday, fell 50 cents, or 1.1%, to $45.14 a barrel by 1359 GMT. The more active November Brent contract was down 55 cents, or 1.2%, at $45.61 per barrel.

U.S. West Texas Intermediate crude futures fell 39 cents or 0.9% to $43 a barrel.

Hurricane Laura made landfall early on Thursday in southwestern Louisiana as a category 4 storm, one of the most powerful to hit the state, with forecasters warning it could push a wall of water 40 miles inland from the sea.

Oil producers on Tuesday had shut 1.56 million barrels per day (bpd) of crude output, or 84% of the Gulf of Mexico’s production, evacuating 310 offshore facilities.

At the same time, refiners that convert nearly 2.33 million bpd of crude oil into fuel, and account for about 12% of U.S. processing, halted operations.

“Perhaps traders are waiting to see what the damage is but the limited impact so far may also just be a reflection of the current oil market dynamics. Temporary disruptions are easily covered,” OANDA analyst Craig Erlam said.

Oil prices also shrugged off U.S. crude inventory declines and signs that gasoline demand in the world’s biggest oil consumer were improving.

Crude oil stockpiles fell last week as exports soared the most in 18 months and refineries boosted production to the highest rate since March, Energy Information Administration data showed on Wednesday. Gasoline stocks also fell.

“It appears that the gasoline inventory reduction was due first and foremost to increased demand – gasoline demand rose to a six-month high of around 9.2 million bpd,” Commerzbank said.

(Additional reporting by Sonali Paul and Koustav Samanta; editing by Jason Neely)

U.S. removed almost 2.7 million barrels daily of Iranian oil from market: Pompeo

FILE PHOTO: U.S. Secretary of State Mike Pompeo reacts as he talks to the media after his meeting with Lebanon's Prime Minister Saad al-Hariri at the State Department in Washington, U.S., August 15, 2019. REUTERS/Yuri Gripas

WASHINGTON (Reuters) – The United States has removed nearly 2.7 million barrels of Iranian oil from global markets daily as a result of Washington’s decision to reimpose sanctions on all purchases of Iran’s crude, U.S. Secretary of State Mike Pompeo said on Tuesday.

In an interview with MSNBC, Pompeo said the U.S. government was confident it could continue with its strategy.

The United States re-imposed sanctions on Iran in November after pulling out of a 2015 nuclear accord between Tehran and six world powers. In May, Washington ended sanction waivers given to importers of Iranian oil, aiming to cut Tehran’s exports to zero.

Iran exported about 100,000 bpd of crude in July, according to an industry source who tracks such flows and data from Refinitiv Eikon. If condensate, a light oil, is included, shipments were about 120,000 bpd a day.

“We have managed to take almost 2.7 million barrels of crude oil off of the market, denying Iran the wealth to create their terror campaign around the world, and we have managed to keep the oil markets fully supplied,” Pompeo said.

“I am confident we can continue to do that,” he added.

The Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers have been cutting 1.2 million bpd since Jan. 1 to reduce global supply. OPEC in July renewed the pact until March 2020 to avoid a build-up of inventories as worldwide demand is seen weakening.

Despite OPEC’s actions along with U.S. sanctions on Iran and Venezuela, Brent crude international oil prices <LCOc1> have been relatively weak, falling on Tuesday to $59 a barrel from a 2019 high of $75, pressured by concerns about slowing demand.

The exact level of Iranian exports has become harder to assess since U.S. sanctions returned in November, meaning estimates fall into a range rather than a definitive figure.

 

(Reporting by Humeyra Pamuk and Doina Chiacu in Washington; Editing by Paul Simao)

U.S. offers up to 6 million barrels of oil from emergency reserve

By Timothy Gardner

WASHINGTON (Reuters) – The U.S. Energy Department said on Thursday it is offering up to six million barrels of sweet crude oil from the national emergency reserve in a sale mandated by a previous law to raise funds to modernize the facility.

A law U.S. President Donald Trump signed last year requires the department to hold sales to fund $300 million improvements including work on shipping terminals to the Strategic Petroleum Reserve, or SPR, which is held in caverns on the coast of Texas and Louisiana. Previous laws have also mandated sales from the reserve, which currently holds more than 649 million barrels.

While global oil prices have been rising as the production group OPEC and Russia work together to cut supplies, the sale did not appear to be an explicit signal that the United States is looking to balance the current market with the SPR. U.S. Energy Secretary Rick Perry, who has said price impacts from tapping the reserve for supply balance are often temporary, did not mention the sale in a press conference earlier on Thursday.

Still, the oil supply could tighten in coming months with the Trump administration’s imposition of sanctions on crude exports from both Iran and Venezuela’s state-owned oil company, and with the producer supply cuts from OPEC and Russia.

The timing of the mandated sale may “serve as a warning to OPEC producers that a larger deployment of the SPR in the future could undermine,” efforts to boost the oil price, at least temporarily, analysts at ClearView Energy Partners said in a note.

The delivery period for the sale will be from May 1 to May 14 for oil from the reserve’s West Hackberry and Big Hill site, and from May 1 to May 31 from the Bryan Mound site. Offers for the oil must be received by March 13, the department said.

(Reporting by Timothy Gardner and Valerie Volcovici; editing by Chizu Nomiyama, Meredith Mazzilli and Susan Thomas)

Trump’s revenge: U.S. oil floods Europe, hurting OPEC and Russia

FILE PHOTO: A pump jack operates at a well site leased by Devon Energy Production Company near Guthrie, Oklahoma September 15, 2015. REUTERS/Nick Oxford/File Photo

By Olga Yagova and Libby George

MOSCOW/LONDON (Reuters) – As OPEC’s efforts to balance the oil market bear fruit, U.S. producers are reaping the benefits – and flooding Europe with a record amount of crude.

Russia paired with the Organization of the Petroleum Exporting Countries last year in cutting oil output jointly by 1.8 million barrels per day (bpd), a deal they say has largely rebalanced the market and one that has helped elevate benchmark Brent prices &lt;LCOc1&gt; close to four-year highs.

Now, the relatively high prices brought about by that pact, coupled with surging U.S. output, are making it harder to sell Russian, Nigerian and other oil grades in Europe, traders said.

“U.S. oil is on offer everywhere,” said a trader with a Mediterranean refiner, who regularly buys Russian and Caspian Sea crude and has recently started purchasing U.S. oil. “It puts local grades under a lot of pressure.”

U.S. oil output is expected to hit 10.7 million bpd this year, rivaling that of top producers Russia and Saudi Arabia.

In April, U.S. supplies to Europe are set to reach an all-time high of roughly 550,000 bpd (around 2.2 million tonnes), according to the Thomson Reuters Eikon trade flows monitor.

In January-April, U.S. supplies jumped four-fold year-on-year to 6.8 million tonnes, or 68 large Aframax tankers, according to the same data.

Trade sources said U.S. flows to Europe would keep rising, with U.S. barrels increasingly finding homes in foreign refineries, often at the expense of oil from OPEC or Russia.

In 2017, Europe took roughly 7 percent of U.S. crude exports, Reuters data showed, but the proportion has already risen to roughly 12 percent this year.

Top destinations include Britain, Italy and the Netherlands, with traders pointing to large imports by BP, Exxon Mobil and Valero.

Polish refiners PKN Orlen and Grupa Lotos and Norway’s Statoil are sampling U.S. grades, while other new buyers are likely, David Wech of Vienna-based JBC Energy consultancy said.

“There are a number of customers who still may test U.S. crude oil,” Wech said.

The gains for U.S. suppliers could come as a welcome development for U.S. President Donald Trump, who accused OPEC on Friday of “artificially” boosting oil prices.

“Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea. Oil prices are artificially Very High! No good and will not be accepted!” Trump wrote on Twitter.

‘KEY SUPPLY SOURCE’

While the United States lifted its oil export ban in late 2015, the move took time to gain traction among Europe’s traditional refineries, which were slow to diversify away from crude from the North Sea, West Africa and the Caspian.

“European refiners started experimenting with U.S. crude last year,” said Ehsan Ul-Haq, director of London-based consultancy Resource Economics. “Now, they know more than enough to process this crude.”

U.S. oil gained in popularity, sources said, in part because of the wide gap between West Texas Intermediate, the U.S. benchmark, and dated Brent, which is more expensive and sets the price for most of the world’s crude grades.

This gap, known as the Brent/WTI spread, has averaged $4.46 per barrel this year, nearly twice as high as the year-earlier figure, Reuters data showed.

Wech of JBC Energy said the spread would likely persist in the near future.

The most popular U.S. grades in Europe are WTI, Light Louisiana Sweet, Eagle Ford, Bakken and Mars.

Prices for alternative local grades have been slashed as a result.

CPC Blend differentials recently hit a six-year low versus dated Brent at minus $2 a barrel. Russia’s Urals also came under pressure despite the end of seasonal refinery maintenance. BFO-CPC BFO-URL-BFO-URL-NWE

WTI was available at 80-90 cent premiums delivered to Italy’s Augusta, well below offers of Azeri BTC at a premium of $1.60 a barrel, according to trading sources.

U.S. oil is even edging out North Sea Forties, which is produced in the backyard of the continent’s refineries.

Cargoes of WTI were offered in Rotterdam at premiums of around 50-60 cents a barrel above dated Brent, cheaper than Forties’ premium of 75 cents to dated.

(Additional reporting by Julia Payne and Devika Krishna Kumar; Editing by Dale Hudson)

Oil touches three-month lows as U.S. supply swells

FILE PHOTO: An oil pump jack pumps oil in a field near Calgary, Alberta, Canada

By Jessica Resnick-Ault

NEW YORK (Reuters) – Oil hovered around three-month lows on Monday, as rising inventories and drilling activity in the United States, the world’s top energy consumer, offset optimism over OPEC’s efforts to restrict crude output and reduce a global glut.

After more than two months of reduced production from the Organization of the Petroleum Exporting Countries, the market is facing evidence that U.S. production remains high and global markets remain oversupplied.

“There is growing skepticism that the production cut has been enacted long enough to take care of the overhang,” said Gene McGillian, director of market research at Tradition Energy. “The longs who piled in last year are turning on the market because there seems to be a realization that a six-month agreement isn’t long enough to rebalance the market.

Brent crude futures fell 7 cents to $51.30 a barrel by 11:33 a.m. Eastern (1633 GMT), having earlier hit a session low of $50.85, its lowest level since Nov. 30.

U.S. West Texas Intermediate crude (WTI)  fell 20 cents to $48.29 a barrel, a 0.4 percent loss.

Prices have fallen by more than 8 percent since last Monday, its biggest week-on-week drop in four months, and analysts said the slide may not have much further to run.

Goldman Sachs said in a note it remained “very confident” about commodity prices and maintained its price forecast of $57.50 for WTI in the second quarter.

The slide could be the result of traders unwinding bullish long positions, and could slow as those positions are unwound, Tradition Energy’s McGillian said.

U.S. drillers added oil rigs for an eighth consecutive week, Baker Hughes data showed on Friday, and they have announced ambitious production growth plans as they rebound from a two-year price war with OPEC. [RIG/U]

OPEC and other major oil producers, including Russia, reached an agreement at the end of November to rein in production by almost 1.8 million barrels per day (bpd) in the first half of 2017.

Russia’s top oil major Rosneft warned that a recovery in U.S. oil output may deter OPEC and non-OPEC producers from extending production cuts beyond June and might lead to a new price war.

Although OPEC states have been complying with supply curbs, led by Saudi Arabia, it has not been enough to overshadow a rise in U.S. inventories to a new high. [EIA/S]

“It will be interesting to see how OPEC rhetoric will evolve with this price correction. Is price the only consideration when it comes to the decision of extending cuts?” BNP Paribas global head of commodity strategy Harry Tchilinguirian told the Reuters Global Oil Forum.

He added that OPEC’s task was more difficult as it aimed to cut inventory levels rather than simply target a specific price.

Money managers cut their net long positions in U.S. crude futures and options in the week to March 7.

(Additional reporting by Jane Chung in Seoul, Keith Wallis in Singapore and Amanda Cooper in London; Editing by Marguerita Choy and Greg Mahlich)

Oil Rises but growing U.S. output threatens Rally

A natural gas flare on an oil well pad burns as the sun sets outside Watford City, North Dakota

By Amanda Cooper

LONDON (Reuters) – Oil edged up on Monday, as investor optimism over the effectiveness of producer cuts encouraged record bets on a sustained price rise, although growing U.S. output and stubbornly high stockpiles kept price gains in check.

Brent futures were up 28 cents at $56.09 a barrel at 1448 GMT, while U.S. West Texas Intermediate crude was up 23 cents at $53.63.

Investors have certainly taken OPEC members at their word on their commitment to cut production and now hold more crude futures and options than at any time on record.

But evidence of rising output in the United States has tempered money managers’ appetite to push prices higher. Since the start of the month oil prices have gained around $2.

“There is still a general consensus that the OPEC/non-OPEC agreement helps supply to get in line with demand. This bullish stance is countered by the ever-increasing inventories in the U.S. and rising rig counts,” PVM Oil Associates strategist Tamas Varga said in a note.

The Organization of the Petroleum Exporting Countries and other producers, including Russia, agreed last year to cut output by almost 1.8 million barrels per day (bpd) during the first half of 2017.

Estimates indicate compliance with the cuts is around 90 percent, while Reuters reported last week that OPEC could extend the pact or apply deeper cuts from July if global crude inventories fail to drop enough.

Top OPEC exporter Saudi Arabia’s crude oil shipments fell in December to 8.014 million bpd from 8.258 million bpd in November, official data showed on Monday.

“Sustained gains above $55 a barrel, and a hoped-for rally to $60 a barrel, (are) both proving incredibly tough nuts to crack,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore.

“At the crux of the matter is that 90 percent OPEC compliance is being balanced by ever increasing U.S. shale production,” he added.

U.S. energy companies added oil rigs for a fifth consecutive week, Baker Hughes said on Friday, extending a nine-month recovery with producers encouraged by higher prices, which have largely traded above $50 a barrel since late November.

“Assuming the U.S. oil rig count stays at the current level, we estimate U.S. oil production would increase by 405,000 (barrels per day, or bpd) between fourth quarter 2017 and fourth quarter 2016 across the Permian, Eagle Ford, Bakken and Niobrara shale plays,” Goldman Sachs said in a research note.

The U.S. market will be closed on Monday for the Presidents Day holiday.

(Additional reporting by Henning Gloystein in SINGAPORE and Aaron Sheldrick in TOKYO; Editing by Louise Heavens/Ruth Pitchford)

Oil prices rise as Middle East producers confirm supply cuts

A motorist holds a fuel pump at a Gulf petrol station in London Apri

By Sabina Zawadzki

LONDON (Reuters) – Oil prices rose on Tuesday, supported by strong demand in Asia and supply cuts by Abu Dhabi, Kuwait and Qatar as part of production curbs organized by OPEC and other exporters.

But traders said the market was pressured by investors closing financial positions that profited from strong gains the day before.

International Brent crude and U.S. West Texas Intermediate  flirted with negative territory in early European trading. By 1420 GMT, Brent was up 40 cents at $56.09 a barrel, while WTI was up 34 cents $53.17.

Traders said there was significant profit-taking after oil shot to mid-2015 highs earlier this week following a deal reached by the Organization of the Petroleum Exporting Countries and other exporters led by Russia to cut output by almost 1.8 million barrels per day (bpd).

But they added that oil markets were still broadly supported by the arrangement to crimp output.

“The market is putting a lot of importance on the commentaries coming out of OPEC and non-OPEC (and) the market is giving OPEC the benefit of the doubt that cuts will be implemented and achieved,” said Michael McCarthy, chief market strategist at Sydney’s CMC Markets.

However, analysts warned prices would turn fast if the market believed compliance was lacking.

“The plan was designed on Nov. 30. The foundation was laid down on Dec. 10. The construction will start on Jan. 1. The following three to six months will provide us with an answer as to whether the foundation is strong enough to hold the building or will it collapse like a house of cards,” PVM analysts wrote.

In a sign that producers are acting on their plans to cut output, Abu Dhabi National Oil Co told customers it would reduce Murban and Upper Zakum crude supplies by 5 percent and Das crude exports by 3 percent.

Kuwait Petroleum Corp notified customers of a cut in contractual crude supplies for January, as did Qatar Petroleum.

Meanwhile, China’s November crude output fell 9 percent from a year earlier to 3.915 million bpd, data showed on Tuesday. Production recovered from October’s 3.78 million bpd, however, which was the lowest in more than seven years.

China’s refinery throughput hit a record in November of 11.14 million bpd, up 3.4 percent year-on-year.

“Declines in Chinese … crude oil output and expansion of its strategic crude reserves underpin our view for China’s crude oil imports to strengthen,” BMI Research said.

In India, fuel demand rose 12.1 percent year-on-year in November.

(Additional reporting by Henning Gloystein and Keith Wallis in Singapore; Editing by Dale Hudson and Louise Heavens)

OPEC officials debate thorny issue of how to implement supply cut

OPEC logo is pictured ahead of an informal meeting between members of the Organization of the Petroleum Exporting Countries (OPEC) in Algiers, Algeria

By Alex Lawler

VIENNA (Reuters) – OPEC officials began talks in Vienna on Friday aimed at working out details of their oil supply-cut agreement, which they concede is looking more complicated by the day.

The meeting of the High Level Committee is comprised mainly of OPEC governors and national representatives – officials who report to their respective ministers. Talks were continuing five hours after they started at 10 a.m. local time (0400 ET).

Last month in Algiers, the Organization of the Petroleum Exporting Countries agreed to reduce production of crude oil to a range of 32.50 million to 33.0 million barrels per day, its first output cut since 2008, to prop up prices.

The deal faces potential setbacks from Iraq’s call for it to be exempt and from countries including Iran, Libya and Nigeria whose output has been hit by sanctions or conflict and want to raise supply.

“It is getting complicated,” an OPEC delegate said before the meeting began on Friday. “Every day there is a new issue coming up.”

Even so, other OPEC officials including Secretary-General Mohammed Barkindo have said they are optimistic a final deal will be reached.

“Our deliberations today – and tomorrow with some non-OPEC producers – could very well have fundamental ramifications for the market, as well as for the medium to long term of the industry,” Barkindo said in a speech at the meeting, according to a text provided by OPEC.

The committee does not decide policy and will instead make recommendations to the next OPEC ministerial meeting on Nov. 30, also in Vienna.

How much each of the 14 OPEC members will produce is one of the matters the committee is examining.

Iraq, OPEC’s No. 2 producer, said this week that it would not cut output and should be exempted from any curbs as it needs funds to fight Islamic State.

Baghdad’s stance is likely to face opposition from other OPEC members, an OPEC source said on Friday. Riyadh and its Gulf OPEC allies do not agree with Iraq’s view, sources said on Thursday.

The meeting is scheduled to continue for a second day on Saturday when representatives from non-OPEC nations, which OPEC wants to curb supplies as well, will also attend.

Non-OPEC nations sending representatives to Saturday’s talks are Russia, Kazakhstan, Mexico, Oman, Azerbaijan, Brazil and Bolivia.

(Reporting by Alex Lawler; Editing by Dale Hudson)