Oil prices are holding near unchanged Tuesday with concerns about strong imports to the U.S. erasing earlier gains tied to optimism about extended production cuts from the world's biggest exporters.
Light, sweet crude for June delivery recently gained 3 cents, or 0.1%, to $48.88 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 4 cents, or 0.1%, to $51.86 a barrel on ICE Futures Europe. Both had posted addition gains of about another 40 cents earlier in the morning before retreating.
That earlier rally had been continued momentum from a joint statement on Monday from Saudi Arabia and Russia that indicated a pact by the Organization of the Petroleum Exporting Countries and external producers to cut output should be extended to the end of March 2018.
A formal decision is expected to be announced May 25. An extension to March next year would have to be agreed by all the participants in the deal.
While it was unclear exactly what sparked a retreat from that rally late Tuesday morning, some analysts are predicting more foreign oil coming into the U.S. despite the output cuts from around the world, said Ric Navy, senior vice president for energy futures at brokerage R.J. O'Brien & Associates LLC. That could be reinforcing fears about why OPEC's cuts haven't more quickly caused historically-high U.S. inventories to shrink.
Late last year, OPEC and a handful of nonmember producers including Russia agreed to reduce collective daily output by about 1.8 million barrels a day in the first half of 2017 in a bid to bring global inventories back to their five-year average.
The market response to OPEC's promise to extend the cut has been subdued because oil cartel members chose to cut production but continued to export crude taken from their own stockpiles.
"They have complied on production cuts but not necessarily on exports," said Amrita Sen, chief oil analyst at Energy Aspects. "They have had refinery maintenance and destocked their own inventory."
Saudi Arabia accounts for about 70% of OPEC's crude stocks and the kingdom has reduced its inventory considerably. Saudi crude stockpiles were 75 million barrels below their October 2015 peak at the start of May, Energy Aspects said in a recent report.
Investors will only believe OPEC's action to reduce supply when they see crude stock drawdowns driven by a drop in imports from the Middle East, say analysts.
Furthermore, due to a record output from OPEC late last year, global inventories may yet prove difficult to reduce, said the International Energy Agency in a report Tuesday.
Even if OPEC and external producers extended their production cuts into the second half of 2017, "stocks at the end of 2017 might not have fallen to the five-year average, suggesting that much work remains to be done in the second half of 2017 to drain them further," said the IEA.
Later Tuesday, investors will be watching for data from the American Petroleum Institute, an industry group that forecasts U.S. crude production and stocks. Official data from the U.S. government follows on Wednesday mornings, and could reset the course of the oil market for the next week.
"It looks a little vulnerable, especially if the market starts to think the (inventory) stats aren't going to be that great," Mr. Navy said.
Gasoline futures recently gained 0.5% to $1.6039 a gallon and diesel futures gained 0.8% to $1.5219 a gallon.
--Summer Said and Jenny W. Hsu contributed to this article.
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(END) Dow Jones Newswires
May 16, 2017 12:27 ET (16:27 GMT)