London - Oil fell amid doubts that prolonged cuts by OPEC and its allies will succeed in clearing a surplus while US output remains so resilient.
Futures lost 2.5 percent in New York and Brent sank to a three-week low in London. While US crude stockpiles are forecast to have extended declines for an eighth week, American drillers continue to add rigs to shale fields.
The OPEC-led deal to reduce production has helped to “stabilize the situation on the world hydrocarbons market,” Russian President Vladimir Putin said at a meeting in Moscow with Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman.
Oil fell after last week’s agreement to prolong supply curbs for nine months by the Organization of Petroleum Exporting Countries and its partners disappointed investors hoping for more.
Saudi Arabia’s Energy Minister Khalid Al-Falih said the cuts are working and predicted global inventories will fall to the five-year average early next year.
“There continues to be considerable scepticism about the effectiveness of the production cuts,” Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt, said in a report. “Oil prices are still trending towards weakness.”
West Texas Intermediate for July delivery was at $48.43 a barrel on the New York Mercantile Exchange, down $1.24, at 1:03 p.m. in London. Total volume traded was 38 percent above the 100-day average. The contract lost 14 cents to $49.66 on Tuesday. There was no settlement Monday because of the US Memorial Day holiday.
Brent for July settlement, which expires Wednesday, dropped $1.47, or 2.8 percent, to $50.37 a barrel on the London-based ICE Futures Europe exchange. The global benchmark crude traded at a premium of $1.89 to WTI, the narrowest in a month. The more actively traded August contract slid $1.15 to $51.09.
US crude stockpiles probably fell by 3 million barrels last week, according to a Bloomberg survey before an Energy Information Administration report on Thursday. American drillers last week boosted the rig count by 2 to 722, the highest level since April 2015, according to data from Baker Hughes.
Russia aims to keep the strategic character of its cooperation with OPEC producers, Energy Minister Alexander Novak said at meeting with his Saudi counterpart and OPEC Secretary-General Mohammad Barkindo in Moscow.
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Goldman Sachs equities team reduced this year’s Brent oil forecast to $55.39 a barrel from $56.76 and WTI estimate to $52.92 from $54.80. Saudi Arabian Oil , known as Saudi Aramco, may raise the Arab Light crude differential by 30 cents a barrel for July sales to Asian customers, according to a Bloomberg survey.
Pumping crude from seabeds thousands of feet below water is turning cheaper as producers streamline operations and prioritize drilling in core wells, according to Wood Mackenzie Ltd. That means oil at $50 a barrel could sustain some of these projects by next year.