The recovery in US drilling activity is damping optimism that had sent prices above $53 a barrel after some members of the Organization of Petroleum Exporting Countries voiced support for prolonging production cuts with other nations beyond June. Meanwhile, before the major markets closed for the holiday break on Thursday, they were higher by 3 cents at $55.89 per barrel. While one week does not a trend make, the recent draw down in US crude inventories is at least partially a result of Saudi Arabia and other OPEC members slashing volumes to American customers as part of their strategy to boost prices.
"The battle between the "sheiks and the shale oil producers" is far from decided. with all attempts by OPEC to achieve a lasting production deficit on the oil market being torpedoed by non-OPEC producers - first and foremost the USA", analysts at Commerzbank wrote.
The bank expects US liquids output to grow year-over-year at 1 million barrels per day or more by December.
Despite a surge in United States shale production, the average cost for a barrel of Brent crude may rise by $10 by the end of the year, according to U.S. investment banking multinational Citigroup, as cited by Bloomberg.
The production-cut agreement spurred a change in market structure that meant traders had less incentive to store oil at sea, prompting the flow of supplies floating on ships to onshore sites.
"With eight additional rigs this week in the Permian...and three additional rigs in the Eagleford, U.S. producers continue to increase production back up to production levels reached before the [price] crash", said Curt Taylor, president of Opportune LLP's Ralph E. Davis Associates, referring to the Baker Hughes BHI, -1.46% rig-count data for the week ended April 13. Not even news that Iran is willing to join in the OPEC output deal if extended until the end of the year was enough to trigger a sustained oil rally as traders are focusing on the increase in USA oil rigs and stockpiles. Iran fed hopes that OPEC and non-OPEC producers would extend the cuts, but Saudi Arabia's energy minister said it was too early to discuss an extension.
The West Texas Intermediate (WTI) benchmark for US crude futures was down 26 cents, or 0.5%, at $52.92 a barrel at 10:53 a.m. ET. With European growth still "anemic", she said the US market is one of the main contributing factors to the price of oil.
In November 2016, OPEC chose to cut its output by 1.8 million barrels for the first six months of this year to end the rising global oversupply. Crude fell even as Saudi Arabia's Energy Minister Khalid Al-Falih said Monday that the oil market is on the road to re-balancing. A Reuters poll showed analysts expected data to show usa crude stocks fell in the week to April 14. That would be the biggest monthly increase since February 2015 and the highest monthly production level since November 2015.
Oil investors are also banking on China to prop up global demand.
Local oil firms are raising their pump prices effective today April 18 as rumors the Organization of the Petroleum Exporting Countries (OPEC) will extend its production cut linger.
"The net result is that global stocks might have marginally increased in the first quarter, versus an implied draw of about 0.2 million barrels per day", the IEA said.