SINGAPORE (Reuters) – Oil prices eased on Thursday as U.S. fuel inventories rose despite efforts by OPEC to cut production and tighten the market.
U.S. West Texas Intermediate (WTI) crude futures CLc1 were trading at $51.08 per barrel at 0112 GMT, down 22 cents, or 0.4 percent, from their last settlement.
Brent crude futures LCOc1, the international benchmark for oil prices, were at $56.62, down 32 cents, or 0.6 percent, from the previous close.
Starting this year, the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia agreed to cut output by 1.8 million barrels per day (bpd) to prop up prices.
The OPEC-led deal helped lift oil from the $30-$40 per barrel range in late 2016/early 2017. But traders say supplies remain ample despite these cuts, thanks in large part to surging U.S. production C-OUT-T-EIA.
As a result, OPEC is widely expected to extend the cuts beyond the current expiry date of end-March 2018.
“OPEC doesn’t really have a choice but to extend cuts unless they’re happy to risk sub-$40 per barrel prices again,” said David Maher, Managing Director for energy at commodity merchant RCMA Group in Singapore.
With ongoing OPEC-led supply cuts supporting prices, but rising U.S. production capping crude, Maher said that markets would likely be balanced in 2018 and 2019, with Brent range-bound in the $50 to $60 per barrel range.
“Currently, the main risks to upside are new Iran sanctions and Venezuela issues, while downside risks are OPEC cuts not being extended or poor compliance leading to agreement breaking down, or weaker demand,” Maher said.
U.S. President Donald Trump is threatening to impose sanctions on Iran less than two years after they were lifted under a 2015 deal between Tehran and leading world powers following Iran’s agreement to suspend its disputed nuclear program.
In Venezuela, an OPEC-member with huge oil reserves, an economic and political crisis is threatening production, and the government is also at loggerheads with the Trump administration.
With rising U.S. production undermining OPEC’s efforts to tighten the market, inventories remain high.
In fact, U.S. crude stocks rose by 3.1 million barrels to 468.5 million barrels last week, according to industry group the American Petroleum Institute (API).
Official U.S. fuel inventory data is due to be published on Thursday by the Energy Information Administration (EIA).
“Our updated global supply-demand balance indeed shows peak stock draws in 3Q17,” Goldman Sachs said in a note to clients.
The U.S. bank said that current oil supply and demand fundamentals meant it expects Brent to average $58 per barrel in 2018.
Reporting by Henning Gloystein; Editing by Kenneth Maxwell