Oil drifts below $US50 as OPEC pessimism lingers

May 30, 2017, 06:21

Pump jacks are silhouetted against the rising sun on an oilfield in Baku, Azerbaijan, January 24, 2013.

Crude futures slumped almost 5% on Thursday after the production-cut deal led by the Organization of the Petroleum Exporting Countries was extended by nine months but not deepened-a let down for investors who anticipated output cuts would be more severe.

West Texas Intermediate for July delivery rose 0.9 percent, or 45 cents, to $50.24 a barrel on the New York Mercantile Exchange at 11:48 a.m.

Trading was subdued due to public holidays in China, the United States and Britain.

Brent for July settlement was at $52.12 a barrel on the London-based ICE Futures Europe exchange.

Last week, members of the Organization of the Petroleum Exporting Countries (and some non-OPEC members) met in Vienna, Austria to discuss extending production cuts to help stabilize the price of the precious commodity, amid two years of soft oil prices stemming from a supply glut which has ballooned in recent years.

We believe that rising United States output will continue to cap prices this year but the Opec deal, for now, has ensured that WTI prices probably won't fall below $45-47.

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Despite the agreement on Thursday, oil price suffered a major selloff on that day and was down around 3 percent by the end of the day. Nigeria is targeting production to touch 2 million barrels per day this year and Libya could increase output by another 0.2 million barrels per day in the coming months.

High compliance with the cuts so far was unlikely to last, he said, adding to the concern about whether the pledge would dent physical oil stockpiles that remained near record levels.

US inventories have dropped seven weeks in a row in a sign Al-Falih may be right, though they still remain above the five-year average.

But U.S. crude production has risen 10 per cent since mid-2016 to over 9.3 million bpd, close to the output of top producers Russian Federation and Saudi Arabia.

Oil rose above $50 a barrel on expectations OPEC will succeed in bringing down inventories as the summer driving season kicks off in the U.S.

The market overreacted to OPEC's decision to extend the production curbs, and the global crude market is heading toward balance in the second half of this year, Japan's Cosmo Oil Co. said in an emailed response to questions. While the last week's increase of just 2 rigs was the weakest among all 19 weeks of increase, the total numbers of operating rigs (722) have touched the highest level since April 2015.

"It's going to be all about inventories and whether they fall as much as OPEC thinks", said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

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