Oil regained some ground in Asian trading Thursday following upbeat data from an industry group that U.S. crude inventories fell sharply last week.
But market watchers don't see the gains lasting.
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After shedding nearly 3% overnight, US crude futures on the New York Mercantile Exchange were recently up 0.8% at $48.73 a barrel in the Globex electronics session. Brent, the global benchmark, rose 0.8% to $51.16 on ICE Futures Europe. Meanwhile, Nymex reformulated gasoline blendstock for July rose 0.8% to $1.6093 a gallon, diesel rose 0.6% to $1.5275 and June ICE gasoil climbed 1.3% to $451.25 a metric ton.
That followed the American Petroleum Institute saying U.S. crude supplies fell 8.7 million barrels last week by its count. That's more than what is anticipated out of the government's report later Thursday. "Other than the API data, the market has little reason to be cheerful about" at present, said Gao Jian, an energy analyst at Shandong-based SCI International.
Even though the Organization of the Petroleum Exporting Countries and major non-cartel heavyweights such as Russia last week extended the ongoing production cuts, it remains to be seen if such caps can effectively chip away the glut of oil that has haunted prices for more than two years. That's because the more that OPEC and Russia limit their output, the faster U.S. shale producers might further boost their production, some analysts say.
"OPEC's decision to prolong the cuts can only provide a strong price floor, but it is essentially useless in boosting prices because U.S. shale producers are still able to make profit and expand their operation at around $40," noted Mr. Gao.
The general trend among U.S. producers points to a need to boost growth forecasts amid anticipated production acceleration the second half of this year, said consultancy Energy Aspects. It estimated that large operators such as Anadarko Petroleum Corp. and Marathon Oil Corp. are expected to increase output by 400,000 barrels a day, with smaller independent producers projected to add a further 100,000 barrels.
Output is also rising elsewhere.
Libya, an OPEC nation that's exempt from the production-cut deal, is said to have increased its output to 3-year highs of late. Growth from a smaller producer injecting "such a significant drag to oil prices suggests that market watchers remain extremely wary over any potential supply-glut widening," said Barnabas Gan, an OCBC economist.
Still, some like Societe Generale remain hopeful that with the cut extension OPEC will eventually achieve its objective of bringing global inventories back to 5-year averages, albeit slower than expected.
OPEC's next official monthly report, which includes individual members' production figure and global inventories, is scheduled for release on June 13.
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(END) Dow Jones Newswires
May 31, 2017 23:29 ET (03:29 GMT)