LONDON (Reuters) – Oil prices gave up early gains on Monday, as the market weighed news from OPEC and other producers about prolonging output cuts against data showing the recovery in U.S. drilling had extended for a year.
Brent crude was up just 3 cent at $49.13 a barrel by 0959 GMT (5.59 a.m. ET), after trading as high as $49.92 earlier in the session. U.S. light crude was also little moved at $46.28 a barrel, down from a intra-day high of $46.98.
Both futures contracts have dropped by more than 10 percent in the last month despite moves by the Organization of the Petroleum Exporting Countries and other exporters, including Russia, to restrict supply in the first half of 2017.
But the OPEC-led efforts to reduce bulging global oil inventories have been undermined by a surge in drilling in the United States, filling much of the gap left by OPEC.
OPEC meets on May 25 when it is expected to discuss extending the cuts to the end of 2017, although analysts say a further six-month extension may not be enough.
“The market is in a very dangerous condition,” said Robin Bieber, technical chart analyst at London brokerage PVM Oil Associates. “The trend is still down, but just correcting.”
Russia said on Monday it was discussing prolonging cuts with other producers beyond 2017, without giving a clear timeline. Saudi Arabia’s Energy Minister Khalid Al-Falih also talked of the possibility of prolonging curbs beyond 2017.
Countering those efforts, U.S. drillers added oil rigs for a 16th week in a row last week, extending a drilling recovery into a 12th month, energy services firm Baker Hughes Inc said on Friday.
Since a low point in May 2016, U.S. producers have added 387 oil rigs, or about 123 percent, Goldman Sachs (NYSE:GS) said.
U.S. crude output averaged 9.3 million bpd in the week ended April 28, its highest since August 2015, according to federal data [EIA/S].
Many analysts now see U.S. crude output heading toward 10 million bpd over the next year or so.
“It’s all about inventories and U.S. shale versus OPEC,” said Hussein Sayed of brokerage FXTM. “OPEC members have no choice but to talk up prices by signaling an extension to the production cuts agreement.”
He said oil prices would probably rally “but the recovery won’t be a straight line.”
