Oil stable as markets tighten, but analysts expect volatility ahead

SINGAPORE, Nov 10 (Reuters): Oil markets were slightly down but stable on Friday, supported by ongoing supply cuts and strong demand which have resulted in a tightening market, although the prospect of rising US output capped prices.

Brent crude was at $63.76 per barrel at 0756 GMT, down 17 cents from its last close but within $1 of a more than two-year high of $64.65 reached earlier this week.

US West Texas Intermediate (WTI) crude was at $57.07 per barrel, down 10 cents but also not far from this week's more than two-year peak of $57.92 a barrel.

The high prices were a result of efforts led by the Organisation of the Petroleum Exporting Countries (OPEC) and Russia to tighten the market by withholding supplies, as well as strong demand and rising political tensions.

"Oil prices have rallied sharply over the past week ... The latest catalyst for this move higher was the sharp rise in geopolitical tensions last weekend, with growing confidence in an OPEC extension and strong oil demand fueling the rally previously," said US bank Goldman Sachs.

The strong demand is visible in Southeast Asia, where the number of tankers holding oil in storage around Singapore and Malaysia has halved since June.

"Inventory changes over recent months indicates that the supply/demand imbalance has improved," said William O'Loughlin, analyst at Rivkin Securities.

But there were some words of caution. "This (oil upward) move may be short-lived ... It is possible that shale ... production can be brought back on stream relatively quickly," said Morgan Stanley bank.

Goldman warned of greater price volatility ahead due to increasing tensions in the Middle East, especially between OPEC fellows but political arch-rivals Saudi Arabia and Iran, along with soaring US oil production.

"We see potential for high spot price volatility in the coming weeks," Goldman said.

"A rise in the US rig count and a non-committal OPEC meeting would push prices lower, in our view, yet additional escalation of recent geopolitical tensions could lead to another large rally," it added.

ANZ bank said that "political stability was jolted awake this week" in the Middle East.

"While the likelihood of a disruption to (oil) supply remains low, we believe the events raise the probability of Saudi Arabia taking a more aggressive stance on production curbs ... As such, we see oil prices remaining well supported in the short-term," ANZ said.

OPEC is due to discuss output policy during a meeting on Nov. 30, and it is expected it will extend cuts beyond the current expiry date in March 2018.

"Recent OPEC communication suggests that an extension will be announced but there are no details on volumes," Goldman said.

Another report adds: The amount of oil stored on tankers around Singapore has dropped sharply in the last months, the latest indication that OPEC-led supply cuts are successfully tightening crude markets even as US exports have soared.

Shipping data in Thomson Reuters Eikon shows around 15 super-tankers are currently filled with oil in waters off Singapore and western Malaysia, storing around 30 million barrels of crude. That is half the number of ships in June and down from 40 tankers holding surplus fuel in mid-2017.

The drop in floating storage around Asia's main oil-trading hubs comes in the wake of voluntary production cuts led by the Organisation of the Petroleum Exporting Countries (OPEC) and Russia as they look to choke off a supply overhang that has dogged markets for years.

"There are less incentives for traders to hold crude given rising crude oil prices and premiums. So to some extent, the OPEC cuts have worked," said Eng Hian, head of trading at Agritrade Energy in Singapore, which trades crude and oil products. The Agritrade group of companies also has a shipping arm that operates tankers used for storage.