Rising US crude inventories push oil prices down

An extension to the OPEC deal will be the main point of conversation when the 13 member countries meet in Vienna on May 25.

Traders and investors have grown increasingly concerned about a supply glut several months into the deal between OPEC and non-OPEC members like Russian Federation to clip production by 1.8 MMbbl/d. Since bottoming out in September, however, USA crude oil production has increased by almost 465,000 b/d.

Crude prices staged a mild rally in Asia on Friday with US crude nearing the key $50 a barrel mark ahead of weekly rig count figures expected to set the near-term tone ahead of next week's meeting of OPEC and allied producers on production cuts. However, a decline of 1.75 million barrel in crude stockpiles fell short of Street expectations.

In a report published Tuesday, the IEA said the oil market during the first quarter "was nearly balanced". Its actions do not fetch the kind of responses they used to earlier. S&P Global, a USA credit ratings specialist, on May 12 cut its debt rating on Oman, a non-OPEC producer, to BB+, one notch lower than before and a speculative grade.

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Oil on Friday rose back above US$50 per barrel to a one-month high on growing confidence that OPEC will maintain its efforts to diminish a global glut. For this reason, it can be termed as positive news for the global oil market.

"This leaves OECD stocks 307 million barrels above their five-year average going into Q217".

"OPEC ministers likely will continue to talk oil higher, there is more chatter on the discussion and that means there will be more volatility in prices", said Giovanni Staunovo, an analyst at UBS Group AG in Zurich.

USA shale producers are highly resistant to low oil prices with operators building up the inventory of drilled uncompleted wells (DUCs), according to industry experts. With new technology, productivity of existing wells has also doubled since 2014. Back on February 24, the oil rig count in Canada stood at 206. This is reflected in a near-record level of production.

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Oil prices, trading at around $53 a barrel, have gained support from reduced output but high inventories and rising supply from producers not participating in the accord have limited the rally, pressing the case for extending the curbs. Members of the Organization of the Petroleum Exporting Countries have stated their intentions to keep supply cuts going through next year. Data released on Thursday shows that even Saudi Arabia has increased sales in the market by 275,000 barrels a day.

"Basically US supply is coming on faster than we anticipated". "If the cuts allow the prices to stay where they're at, we might see a modest increase".

The OPEC meeting will be the biggest driver for oil prices in the week ahead.

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