Oil rally fizzles as focus shifts to output OPEC can't control

Obagi oil field near Akabuka, Nigeria. Photo / Getty Images

Oil's rebound ran out of steam as investors focus on all the production that OPEC can do nothing about.

Futures were little changed in New York as they capped the first weekly gain in a month. The Organization of Petroleum Exporting Countries boosted estimates for growth in rival supplies by 64 per cent, as producers in the US shale patch, Brazil and elsewhere keep boosting production.

"Prices have come up quite a bit this week, and it looks like the market just ran out of steam," Kyle Cooper, director of research with IAF Advisors in Houston, said by telephone. "There's concern about rising non-OPEC supply and whether they will stick to their guns when they meet later this month. They will need to, because of rising US production."

Oil rebounded somewhat this week after the biggest decline in American crude inventories since December helped allay concerns that OPEC won't be able to ease a supply glut. But the US benchmark is still down 11 per cent for the year after a rout last week dragged prices back to where they were before OPEC's deal at the end of November. OPEC ministers will meet May 25 to decide whether to go forward with an extension of their production cuts.

West Texas Intermediate for June delivery advanced 1 cent to $47.84 a barrel on the New York Mercantile Exchange. It was the highest close since May 1. Total volume traded was about 3 per cent below the 100-day average. Prices rose 3.5 per cent this week.

Brent for July settlement rose 7 cents to $50.84 a barrel on the London-based ICE Futures Europe exchange. Prices increased 3.5 percent this week. The global benchmark crude closed at a $2.67 premium to July WTI.

US supplies declined by 5.25 million barrels to 522.5 million last week, Energy Information Administration data showed Wednesday. While that's down from a record 535.5 million barrels at the end of March, output rose for a 12th week to 9.3 million barrels a day, the highest since August 2015.

OPEC and its allies support extending the curbs for a further six months, Iraq's Jabbar Al-Luaibi and Algeria's Noureddine Boutarfa said Thursday in Baghdad. The two biggest producers participating in the curbs, OPEC's Saudi Arabia and non-member Russia, both signaled willingness on May 8 to prolong the deal.

In other oil-market news:

• US drillers have dramatically reduced their hedging activity, a move that could portend a break in the production gains that have upended global crude prices.

• Saudi Arabia and Equatorial Guinea agree on extending oil output reduction deal for at least 6 months. The Saudis also support Equatorial Guinea in joining OPEC, according to Saudi Press Agency.

• In OPEC's battle to revive the global oil market, the group and its allies are digging in for a long war of attrition against shale. US output will be approaching the 9.5 million barrels a day mark by the time OPEC meets in Vienna later this month.