Oil prices eased off a more than one-month high on Tuesday, with the U.S. plan to sell some of its stocks contributing to the pullback and offsetting investors' optimism that the coming OPEC meeting of major producers would result in more production cuts.
Brent crude, the global oil benchmark, fell 1% to $53.35 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were trading down 0.9% at $50.67 a barrel.
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Crude has risen around 9% in the past two weeks with investors banking that the Organization of the Petroleum Exporting Countries and other major producers will extend their production cuts that are due to expire in June. The first budget proposal from President Donald Trump helped stall the rally, however, after it included a plan to sell half of the U.S. emergency crude stocks.
Global oil stocks have been the focus of OPEC's efforts to reduce production but thus far have remained stubbornly high. News that the U.S. could further contribute to the problem kept prices under pressure.
The fall in prices was likely triggered by the proposal, although as the oil would be sold over the course of a decade, the impact should not be dramatic, said Tamas Varga at brokerage PVM.
"The plan, if implemented, will not create a worryingly oversupplied situation."
Late last year OPEC and other major producers including Russia agreed to cut output by 1.8 million barrels a day for the first half of 2017 in a bid to bring down stocks. Thursday's meeting is expected to yield an extension to the deal of up to nine months.
"OPEC were saying they want to bring down inventories and it hasn't happened yet which is why we expect an extension," said Giovanni Staunovo, analyst at UBS.
One potential hurdle to OPEC reaching consensus is agreeing the length of the extension, with some members preferring six-months. Saudi Arabia's oil minister Khalid al-Falih is in favor of a nine-month extension.
Either way, analysts said that a cut has been priced into the market.
"On the consensus baseline assumption of a nine-month extension with no deepening, we expect little impact to prices," said Deutsche Bank in a note.
Oil prices remain well below Saudi's target of $60, and that could prompt more drastic action.
"Any surprise could possibly come from the bullish side--a deeper than expected cut in the form of more non-OPEC producers joining the deal and/or giving Nigeria, Libya a quota, too," said PVM's Mr. Varga.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--fell 1% to $1.65 a gallon. ICE gas oil changed hands at $473.50 a metric ton, down $5.50 from the previous settlement.
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(END) Dow Jones Newswires
May 23, 2017 06:47 ET (10:47 GMT)