Oil prices edged down on Tuesday, following a week of straight gains that brought the global oil benchmark above $50 a barrel for the first time in two months, amid growing optimism that the market is tightening.
Brent crude, the global oil benchmark, fell 0.61% to $52.40 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.38% at $49.98 a barrel.
Continue Reading Below
Although oil futures edged down in the morning session, analysts say a swath of positive news the past two weeks, including ebbing U.S. inventories and slowing production, has boosted investor confidence in oil, which has been in the doldrums due to a large persistent glut.
"It's a combination of things. The U.S. data does show much stronger-than-expected demand and rapidly declining inventory," said Paul Horsnell, the head of commodity research at Standard Chartered. "It is [also] clear that Saudi Arabia is still reducing exports and is still committed to rebalancing the market."
Last year the Organization of the Petroleum Exporting Countries, of which Saudi Arabia is a member, joined up with allied countries such as Russia to withhold almost 2% of the world's oil output to boost prices.
Not all member countries have complied with their pledges to lower output. But oil prices received a boost when Saudi Arabia said last week it would go further than limiting its production by also placing a cap on its exports.
Overall, oil prices have received support from data showing the U.S. shale oil machine may be slowing down.
For about three years, American producers have been locked in a battle for market share with OPEC producers.
Before agreeing to limit their output, the members of the oil cartel pumped crude at high rates in a bid to drown out smaller U.S. producers.
The result: prices plunged to a 13-year low and global inventories surged. It also tipped the global supply-demand balance, causing economic woes for some nations as their usual stream of oil revenue shrank.
On Monday the Energy Information Administration said total U.S. crude production grew 0.6% from April to hit the highest daily average for a month this year, but the data also revealed growth might be sputtering, as May's growth was the second slowest of 2017.
Some investors hope the numbers mean that high-cost producers in the U.S. might be pulling back amid still-low prices.
Other experts are adopting a wait-and-see approach as U.S. oil production depends on the decisions made by U.S. shale oil companies.
It might still be premature to assume shale production will cool into year-end because capital-spending reductions the past several years have largely been a function of companies "being able to get more for every dollar invested," said Energy Aspects.
Still, shale oil producers such as Anadarko Petroleum Corp. and ConocoPhillips lost more than expected in the second quarter of this year due to low oil prices. Both firms announced plans to rein in spending. Together, they shaved a combined $500 million out of their $9.2 billion budgets.
Later on Tuesday investors will be watching estimates on U.S. stocks and production data from the American Petroleum Institute, an industry group.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 0.17% to $1.68 a gallon. ICE gas oil changed hands at $493.50 a metric ton, up $4.50 from the previous settlement.
contributed to this article
Write to Neanda Salvaterra at email@example.com and Jenny W. Hsu at firstname.lastname@example.org
(END) Dow Jones Newswires
August 01, 2017 08:02 ET (12:02 GMT)