Oil prices steadied on Tuesday after a week of gains as the prospect of increasing U.S. exports dampened bullish sentiment that has driven Brent to more than two-year highs above $60 per barrel.
Iraq's move to increase oil exports from its southern ports by 220,000 barrels per day (bpd) to 3.45 million bpd to make up for supply disruptions from its northern Kirkuk fields also weighed on prices, traders said. Benchmark Brent was down 10 cents at $60.80 a barrel by 1050 GMT, not far off July 2015-highs reached earlier this week, and up around 37 percent since their 2017 lows last June.
U.S. light crude was 10 cents lower at $54.05, still near its highest since February and also not far off its highest for more than two years. Traders and brokers said investors were adjusting positions after price rises of around 5 percent in October. Despite generally upbeat sentiment, some analysts also warned the market was overbought, having risen too far, too fast.
"U.S. shale output could keep a lid on prices over the medium to long-term," said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers.
U.S. light crude has been trading at a discount of around $6.70 to Brent making it attractive to refiners. U.S. crude production has risen almost 13 percent since mid-2016 to 9.5 million barrels per day (bpd).
"The large differential has opened the door on regional arbitrage, driving a spike in U.S. crude exports over recent weeks," BMI Research said in a note.
Despite Tuesday's price dip, sentiment remained positive, fueled by a pledge by the Organization of the Petroleum Exporting Countries, Russia and other exporters to hold back about 1.8 million barrels per day (bpd) in oil production to tighten markets. While the actual cuts aren't quite as high as the target, analysts say overall compliance has been strong.
"The OPEC deal compliance has been very firm, with rates averaging 86 percent since January," according to Bank of America Merrill Lynch.
The pact runs to March 2018, but Saudi Arabia and Russia have voiced support to extend the agreement.
OPEC is scheduled to meet officially at its headquarters in Vienna, Austria, on Nov. 30.
"The fear of oversupply could easily turn to a fear of undersupply if inventories keep declining like they have been and demand continues to grow," said William O'Loughlin, investment analyst at Rivkin Securities.
Oil rose on Wednesday, set for its largest third-quarter gain in 13 years, after the Iraqi oil minister said OPEC and its partners were considering extending or deepening supply cuts to erode an existing global surplus.
Brent crude futures rose 29 cents to $55.43 a barrel by 0800 GMT, while U.S. West Texas Intermediate (WTI) crude futures were up 42 cents at $49.90 a barrel. The oil price is on course for a rise of 15.5 percent this quarter, which would make this year's performance the strongest for the third quarter since 2004.
"An improving macro-economic backdrop should spur oil demand growth over the next couple of quarters and if OPEC increases its adherence to production cuts, higher prices will come," ANZ Research said in a note."All things being equal, we still expect oil prices to test new highs (for 2017) by the end of the year." The Organization of the Petroleum Exporting Countries and other producers are mulling a range of options, including an extension of cuts, but it is premature to decide on what to do beyond March, when the agreement expires, Iraqi oil minister Jabar al-Luaibi told an energy conference on Tuesday.
OPEC and producers including Russia have agreed to reduce output by about 1.8 million barrels per day until March 2018 to reduce global oil inventories and support prices.
Some producers think the pact should be extended for three or four months, others want it to run until the end of 2018, while some, including Ecuador and Iraq, think there should be another round of supply cuts, al-Luaibi said.
But analysts doubt that such an extension would have much of an impact on the overall oil market. "I can't see the market tightening unless OPEC cuts output further next year," Commerzbank strategist Carsten Fritsch said. Georgi Slavov, head of research at commodities brokerage Marex Spectron said he did not expect demand for crude oil to rise significantly in the final quarter of this year, which meant supply would have to be restricted even more tightly.
U.S. crude stocks rose last week while gasoline and distillate stocks decreased, according to the American Petroleum Institute on Tuesday. Crude inventories rose by 1.4 million barrels in the week to Sept. 15 to 470.3 million, compared with expectations for an increase of 3.5 million barrels.
The U.S. Department of Energy releases official data on inventories and refinery activity later on Wednesday.
Oil futures rose on Thursday after official figures showing U.S. crude inventories fell more than expected, but the market is clearly settling into a range amid quiet trading, analysts said.
Brent crude, the global benchmark, was up 18 cents, or 0.3 percent, at $52.88 at around 0617 GMT, after falling slightly earlier. It closed up 1.1 percent on Wednesday, snapping two days of declines.
U.S. West Texas Intermediate (WTI) crude was up 16 cents, or 0.3 percent, at $49.72, after declining earlier. The contract gained 0.8 percent in the previous session. "Broadly I think the market is trading sideways at the moment," said Ric Spooner, chief market analyst at CMC Markets in Sydney.
U.S. crude stockpiles fell last week as refineries boosted output to the highest percentage of capacity in 12 years, the Energy Information Administration said on Wednesday. U.S. oil inventories dropped by 6.5 million barrels last week, the government data showed, steeper than the expected decrease of 2.7 million barrels.
"It does create the hope that we are going to end the summer driving season with inventories below the year before, which would be a positive development," Spooner said. Refiners processed nearly 17.6 million barrels of crude, surpassing a record set in May and the most for any week since the U.S. Department of Energy started keeping data in 1982.
But a surprise increase in gasoline stocks is capping gains in oil prices and tempering attempts by the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers to boost prices that are about half of levels three years ago. "All the crude that was drawn was basically run through the refineries and this resulted in a gasoline build of 3.4 million barrels," said Matt Stanley, a commodities broker at Freight Investor Services in Dubai.
"The minute OPEC try and raise prices by cutting production the U.S. producers will react accordingly to fill the void. This results in a tug of war that we have witnessed all year and the final outcome is a rangebound market," he added.
They are cutting output by about 1.8 million barrels per day (bpd) under an agreement set to run until March 2018. The deal has supported prices but a recovery in output in Libya and Nigeria, OPEC members exempt from the cut, has also complicated the initiative.
Oil hovered around three-month lows on Monday, as rising U.S. inventories and drilling activity offset optimism over OPEC's efforts to restrict crude output. Brent crude was down 7 cents on the day, at $51.30 a barrel by 1202 GMT, having hit a session trough of $50.85, its lowest level since Nov. 30.
U.S. West Texas Intermediate crude fell 15 cents to $48.34 a barrel.
The price has fallen by more than 8 percent since last Monday, its biggest week-on-week drop in four months, and analysts said the slide may not have much further to run. "The market is bearish because sentiment has turned. The risk is still towards the downside, but we are nowhere near the precipice," PVM Oil Associates Tamas Varga said.
Goldman Sachs said in a note it remained "very confident" about commodity prices and maintained its price forecast of $57.50 a barrel for WTI in the second quarter.
U.S. drillers added oil rigs for an eighth consecutive week, Baker Hughes said on Friday, lifting spending to benefit from an earlier recovery in crude prices since the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut output. [RIG/U]
OPEC and other major oil producers including Russia reached an agreement late last year to rein in production by almost 1.8 million barrels per day (bpd) in the first half of 2017. Although OPEC states have been complying with supply curbs, led by Saudi Arabia, it has not been enough to overshadow a rise in U.S. inventories to a new high. [EIA/S]
"It will be interesting to see how OPEC rhetoric will evolve with this price correction. Is price the only consideration when it comes to the decision of extending cuts?" BNP Paribas global head of commodity strategy Harry Tchilinguirian told the Reuters Global Oil Forum. He added that OPEC's task was more difficult as it aimed to cut inventory levels rather than simply target a specific price.
Money managers cut their net long positions in U.S. crude futures and options in the week to March 7.
For the broader financial markets, the focus will be on the Federal Reserve's policy meeting later this week at which it could likely raise U.S. interest rates. "The week ahead is packed with potentially market defining releases," Michael McCarthy, chief market strategist at Sydney's CMC Markets, said. "However, the key to market performance this week is the response to the U.S. lift in rates."