Oil wavers on US output worries

Oil prices were up slightly on Wednesday on declining US inventories and reports of a Saudi supply cut to Asia but remained near five-month lows reached last week on concerns about rising US output.

Brent crude futures for July delivery were up about 1% since Tuesday’s close at 12:40 p.m. in London, at USD 49.22 per barrel, having briefly touched below USD 47 per barrel on Friday.

Bearish sentiment was fuelled by a Tuesday Reuters report which claimed that Saudi Aramco would cut supplies to clients in Asia by around 7 million barrels next month, as well as by data by the American Petroleum Institute which suggested that US commercial crude inventories had declined by about 5.8 million barrels last week.

Saudi Arabia also gave a boost to flagging oil prices on Monday by suggesting that last year’s global output cut agreement could be extended not only until the end of this year, but also into the first half of 2018.

In recent weeks, <a href=’https://theenergyyear.com/companies-institutions/opec/’>OPEC and non-OPEC producers have struggled to agree on an extension of the cuts, set to expire in June, by a further six months.

Nevertheless, analysts fear this may not be enough to sustain oil prices above USD 50 per barrel.

“U.S. oil production surpassed expectations in terms of an early bottoming and swift uptick, and is set to expand further based on the latest drilling momentum,” Julius Baer head Norbert Ruecker told Reuters.

“We see prices between USD 45-USD 50 per barrel as fundamentally justified.”

Despite the positive API report, global crude inventories have also been falling more slowly than anticipated. A separate report by the EIA about last week’s changes in US crude inventories is expected later on Wednesday.

“We really need to see some of the data starting to support the idea that global inventory levels are coming down,” Ole Hansen, a senior manager at Saxo Bank, added in comments to the agency.

“There have been some signs that there has been some wavering in terms of demand growth.”