Crude oil futures stabilized Thursday after sinking to their lowest level in nearly three weeks overnight amid worries that U.S. production is overcoming cuts from major players elsewhere.
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Brent crude, the global oil benchmark, rose 0.9% to $53.40 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading up 0.8% at $51.25 a barrel.
Oil prices fell by almost 4% in the U.S. session, marking the steepest drop since March 8. The decline was triggered by 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 move highlighted the fragile state of the market," said Saxo Bank's head of commodity strategy Ole Hansen.
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 National Australia Bank.
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Latest data from the Energy Information Administration showed U.S. output rose to 9.25 million barrels a day last week, the highest level since August 2015.
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.
Oil prices have risen by around 15% since OPEC agreed to cut output on Nov. 30, a deal which other major producers including Russia subsequently added to, targeting an overall reduction of 1.8 million barrels a day in the first half of 2017.
OPEC and its collaborators will meet in late May to decide whether to extend the cutbacks by between three months and a year. Earlier Thursday Saudi Arabia's energy minister Khalid al-Falih said a preliminary agreement to extend cuts had been reached, although negotiations to secure final agreement from all of OPEC's members continued.
"OPEC is doing their utmost to support the market by talking about extending, but they've been talking about that for the past three weeks and I think that's fully priced in," said Saxo Bank's Mr. Hansen.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 0.8% to $1.67 a gallon. ICE gasoil changed hands at $480.00 a metric ton, down $7.75 from the previous settlement.
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(END) Dow Jones Newswires
April 20, 2017 06:10 ET (10:10 GMT)