Oil is holding near $50 a barrel as optimism spurred by OPEC’s output cuts confronts pessimism over rising U.S. supply.
Futures in New York were little changed after rising 5.5 percent last week, the biggest weekly gain since December. While OPEC Secretary-General Mohammad Barkindo said Sunday that he is “cautiously optimistic that the market is already rebalancing” and stockpile levels have started to ease, data on Friday showed the number of rigs drilling for oil in the U.S. rose to the highest since September 2015.
Barkindo’s comments are bolstering confidence in the Organization of Petroleum Exporting Countries’ commitment to drain swollen inventories before the group meets May 25 in Vienna. Kuwait and other producers from the group joined with non-member Oman to voice support for an extension of the six-month deal to cut output that began in January. The effects of the curbs have been undermined by a surge in U.S. supply and production.
“The lower end of oil prices will be protected by OPEC’s output-cut decision, whereas the higher end will be capped by expanding U.S. production,” Hong Sung Ki, a commodities analyst at Samsung Futures Inc., said by phone from Seoul. “While OPEC’s cuts will resonate deeper as demand starts to pick up in the second quarter, U.S. output may continue to rise until the third quarter.”
West Texas Intermediate for May delivery was at $50.59 a barrel on the New York Mercantile Exchange, down 1 cent, at 9:36 a.m. in London. Prices gained $2.63 last week to settle at $50.60. Total volume traded was about 40 percent below the 100-day average.
Brent for June settlement fell 5 cents to $53.48 a barrel on the London-based ICE Futures Europe exchange. The May contract expired on Friday after falling 0.3 percent to $52.83 a barrel. The global benchmark crude traded at a premium of $2.40 to June WTI.
See also: OPEC deal pushes Russian oil output down 1.6 percent from peak
OPEC will be “testing the waters” in advance of the meeting next month to find out what resonates, said Michael Poulsen, an analyst at Global Risk Management Ltd. If the “market doesn’t react, or counter-intuitively it drops, then they already got the answer whether it makes sense to cut another six months,” he said.
Rigs targeting crude in the U.S. increased for an 11th week to 662, the longest run of gains since 2011, according to data from Baker Hughes. American oil production expanded for a sixth week to 9.15 million barrels a day in the week ended on March 24, the highest level since February 2016, according to Energy Information Administration data.
Oil-market news:
Money managers reduced their net-long position on WTI crude by 6.1 percent in the week ended March 28. Petroliam Nasional Bhd., Malaysia’s state oil company, said an extension of OPEC production cuts beyond the originally planned six months would provide more stability to crude prices.
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