Crude oil futures recovered in Asian trade Thursday, after sinking to their lowest level in nearly three weeks overnight amid worries that U.S. production catches up to cuts being made by major oil players elsewhere.
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On the New York Mercantile Exchange, light, sweet crude futures for delivery in May traded at $50.77 a barrel at 0240 GMT, up $0.33 in the Globex electronic session. June Brent crude on London's ICE Futures exchange rose $0.40 to $53.33 a barrel.
Oil prices fell by almost 4% in the U.S. session, marking the steepest drop since March 8. The decline was mainly due to the surprise build in U.S. gasoline stockpiles that point to weaker-than-expected demand at a time when consumption of gasoline usually rises.
The sharp drop also underscores the widespread anxiety that U.S. shale producers are becoming more capable in churning out oil at a lower price, analysts say.
"What people are worried about is no one knows exactly what the breakeven cost is for the U.S. shale producers," said Phin Ziebell, an economist at the National Australia Bank.
Latest data by the Energy Information Administration showed U.S. output rose to 9.25 million barrels a day last week, the highest level since August 2015.
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What this tells investors is that the current price level of $50-$55 is sufficient for the U.S. upstream players to keep their operations running while pouring more money to advance their technology, he noted.
As U.S. production costs fall, pressure on other oil producers intensifies, especially for those in the Organization of the Petroleum Countries that are trying to buoy prices by curbing production.
Since the start of the year, oil prices have risen roughly around 20% after OPEC and other heavyweights such as Russia agreed to slash their output by nearly 1.8 million barrels a day. During the period, U.S. production has risen 3.4%, or by at least 300,000 barrels a day.
OPEC and Russia will meet in late May to decide whether to extend the cutbacks until the end of this year.
Still, an agreement may not completely assuage investors' concerns of a stubborn overhang, with oil production still likely to increase from the U.S.
"Either way, we won't be see a major upside in prices no matter what they decide," said Mr. Ziebell.
Nymex reformulated gasoline blendstock for May -- the benchmark gasoline contract -- rose 0.7% to $1.6709 a gallon, while May diesel traded at $1.5897, up 0.5%. ICE gasoil for May changed hands at $480.00 a metric ton, down $7.75 or 1.6% from Wednesday's settlement.
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(END) Dow Jones Newswires
April 19, 2017 23:28 ET (03:28 GMT)