Oil drops after OPEC-led output cut extension falls below expectations

Oil drops after OPEC-led output cut extension falls below expectations”

Last week, oil futures settled at the lowest level in more than three weeks on Friday, with prices suffering their largest weekly loss in a month amid growing concern over rising shale production in the U.S.

U.S. West Texas Intermediate crude futures were up 38 cents at $48.71 a barrel.They dropped $1.34, or 2.7 percent, in the previous session to settle at $48.32 per barrel, the lowest close since May 12.

The cutbacks have yet to drain crude inventories significantly, Reuters added.

US demand for transport fuels such as gasoline used in cars and diesel in buses tends to rise significantly as families visit friends and relatives or go on vacation during the summer months, with the so-called summer driving season officially kicking off on the Memorial Day holiday at the start of this week. That compared with analyst expectations for a decrease of 2.5 million barrels.

Late Tuesday, the American Petroleum Institute said crude oil inventories in the United States, the world's leading economy, declined by more than 8.6 million barrels, far more than the 3.2 million barrel draw forecast by S&P Global Platts earlier this week.

Increased U.S. drilling would put a strain on OPEC and other major producers' efforts to curb production in an effort to trim the global supply glut and stabilize prices.

US crude production rose almost 500,000 barrels per day (bpd) last week from year-earlier levels.

More news: Pakistan joins Shanghai Cooperation Organization as full member

"This could lead to a drilling free-for-all in the US and also see other signatories waver in their commitments", said Jeffrey Halley, senior market analyst at futures brokerage OANDA.

Saudi Arabia and Russian Federation said OPEC and non-OPEC producers were committed to bringing global oil inventories down to the industry's five-year average.

Russia's most powerful oil boss said the deal between OPEC and its partners to curb output won't stabilize the crude market over the long term as US shale fills the supply shortfall. "We do expect prices eventually to gain some upwards momentum because of excess demand, but in the short term market sentiment remains bearish", the bank said.

"The key question will be whether the next round of Opec cuts results in actual curtailment of exports since that will obviously be much more impactful for global prices", said Tamar Essner, senior director of energy and utilities at Nasdaq Corporate Solutions.

Libya's oil production is expected to rise to 800,000 barrels per day (bpd) this week, according to state-run National Oil Corporation said on Monday.

There was some positive rhetoric from OPEC Secretary Barkindo with remarks that crude storage in some USA hubs had already fallen to the 5-year average and prices edged away from intra-day lows.

"There are signs that the 1.8 million barrel cut is not really what the market is feeling because of rising production in the U.S., Libya, Nigeria and even the North Sea", said Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut.

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