Oil turns positive as market awaits EIA data

[May 17, 2017]  By Sabina Zawadzki

LONDON (Reuters) - Oil prices strengthened on Wednesday ahead of U.S. crude inventory data that could give investors a clue as to whether an OPEC-led output cut is making progress in reducing the persistent global supply overhang.

Brent crude was up 33 cents at $51.98 per barrel by 1100 GMT (7 a.m. ET). U.S. light crude rose 18 cents to $48.84.

Both benchmark prices started the day in negative territory after industry data from the American Petroleum Institute (API) estimated that U.S. crude stocks had risen by 882,000 barrels in the week ending May 12 to 523 million barrels.

That defied expectations of analysts who estimated a draw in the stockpiles of 2.4 million barrels, according to a Reuters survey. Data from the Energy Information Agency, seen as more complete, is due later on Wednesday.

Brent reached $52.63 a barrel and WTI rose as high as $49.66 on Monday after Saudi Arabia and Russia agreed on the need to extend output curbs by members of the Organization of the Petroleum Exporting Countries and other producers.

The supply cuts of 1.8 million barrels per day (bpd) were initially agreed to run during the first half of 2017. Riyadh and Moscow say they should be extended until March. An extension is due to be discussed at an OPEC meeting on May 25.

"The oil rally has paused and whether it can resume depends on today's EIA inventory report," said Ole Hansen, head of commodity strategy at Saxo Bank.

"Having seen an initial short-covering rally, we now need OPEC and non-OPEC producers agreeing on the nine-month extension for the market to begin build up new long positions," Saxo's Hansen said.

A pumpjack brings oil to the surface in the Monterey Shale, California, April 29, 2013. REUTERS/Lucy Nicholson/File Photo

OPEC nations such as Kuwait, Iraq, Oman and Venezuela have said they supported an extension to the supply cuts, signaling that the meeting next week will go smoothly. Some analysts have said a deeper cut could even be on the table.

The extension would come as global stocks remain stubbornly high, in part because U.S. production has climbed 10 percent since mid-2016 to 9.3 million bpd, not far off that of top producers Russia and Saudi Arabia.

Jefferies bank said it was lowering its oil price forecasts due to the strong rise in U.S. production, cutting its Brent price estimate for the second half of 2017 to $59 per barrel from $61 previously.

North Sea oil output, generally seen in terminal decline, is expected to jump by a net 400,000 bpd in the next two years with new projects and greater efficiencies.

Trade sources and Reuters shipping data indicated a rising number of tankers storing oil offshore China because facilities on land are full.

(Additional reporting by Henning Gloystein in Singapore; Editing by Edmund Blair and Elaine Hardcastle)

[© 2017 Thomson Reuters. All rights reserved.]

Copyright 2017 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.