Oil Slips as Investors Refocus on Russia's Output Stance

Oil prices were lower in Asia Thursday as concerns whether Russia will extend the production cap outweighed gains from higher-than-expected drawdown in U.S. inventories.

Prices rose overnight as the U.S. Energy Information Administration reported that U.S. crude inventories fell 3.6 million barrels last week, significantly more than what markets were expecting, and contrasting sharply with the nearly 900,000-barrel increase reported Tuesday evening by the American Petroleum Institute, an industry group.

But the positive market sentiment reversed on over-supply concerns with Russia still unsure about extending production cuts. ANZ said in a note that Russia's Energy Minister Alexander Novak is reported to have said a decision to prolong the deal was still "under discussion," spooking investors.

"There is no obviously bullish factor in the market. I don't see any big change," said Li Li, energy research director at ICIS China. "I think the market will be focusing on the OPEC meeting next month."

She said the Organization of the Petroleum Exporting Countries would likely have to extend the production cap in order to prevent a slide in oil prices, but Russia may not officially announce its stance on the move.

Over the next month or so, oil prices are likely to continue to trade in the range of $50 per barrel even if the cap is extended, said Li Li.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in June traded at $49.38 a barrel at 0350 GMT, down 0.5% in the Globex electronic session. Brent crude on London's ICE Futures exchange fell 0.4% to $51.63 a barrel.

Geo-political tensions over North Korea and a volatile situation in the Middle East is likely to limit any downside to oil prices in the short term, said Gnanasekar Thiagarajan, director of Commtrendz Risk Management. "Nobody is willing to bet that prices will fall sharply," he said.

Low oil prices have not only impacted margins, but also hurt oil exploration. Global oil discoveries fell to a record low last year as companies cut spending, and oil projects sanctioned were at the lowest level in more than 70 years, the International Energy Agency said, warning that the trend would likely continue this year.

Oil discoveries declined to 2.4 billion barrels in 2016, compared with an average of 9 billion barrels per year over the past 15 years, while the volume of conventional resources sanctioned for development last year fell by 30% to 4.7 billion barrels last year.

Nymex reformulated gasoline blendstock for May--the benchmark gasoline contract--edged 0.6% lower to $1.5801 a gallon. ICE gasoil for April was last down 0.7% at $464 a metric ton.

Write to Biman Mukherji at biman.mukherji@dowjones.com

(END) Dow Jones Newswires

April 27, 2017 00:48 ET (04:48 GMT)