Oil drifts below US$50 as market pessimism over OPEC deal lingers

OPEC compliance with the supply cuts has reached 100

Crude oil prices were down more than 1 percent in overnight trading, but recovered somewhat after a report on first quarter gross domestic from the United States came in better than earlier forecasts.

The Organization of the Petroleum Exporting Countries (OPEC) has been trying to tighten the supply chain, although the USA drilling continues to hinder the efforts.

Brent for July settlement was 11 cents lower at US$52.04 a barrel on the London-based ICE Futures Europe exchange.

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.

The benchmarks Brent crude futures and U.S. West Texas Intermediate crude futures were trading down with 6 cents at $52.09 per barrel and were down 8 cents at $49.72 per barrel respectively.

An initial agreement, in place since January, would have expired in June 2017.

There were expectations that United States oil output would continue to increase over the medium term which would undermine OPEC attempts to lower global inventories.

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"They increased expectations to such an extent that nine months was a disappointment", Fritsch said.

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. Saudi Arabia's Energy Minister Khalid Al-Falih said the oil-cuts strategy is working and that global stockpiles will drop faster in the third quarter. U.S. production has soared 10% since mid-2016 to more than 9.3-million barrels a day, close to top producer levels Russian Federation and Saudi Arabia.

USA drillers have added rigs for 19 straight weeks, bringing the total 722, the highest number since April 2015 and the longest run of additions on record, according to energy services firm Baker Hughes Inc.

The Post concludes that while the Saudis' earlier gambit to increase production and quash USA shale growth "was a risky, hard gamble, not for the feint of heart, and victory was far from assured, but today OPEC looks like it's playing to neither win nor lose".

Oil traded below US$50 a barrel after OPEC underwhelmed investors with its production-cut extension deal.

Analysts say that reducing bloated global stocks will be key to reining in oversupply.

"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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