Oil futures pick up on news of fall in US crude stockpiles

Oil prices have recovered after slipping to a three-week low in the previous session amid reports of a fall in U.S. crude stocks. "That's consistent with my sense that this is all about inventories and the associated supply overhang in crude oil markets at the moment", said Greg McKenna, chief market strategist at futures brokerage AxiTrader, as quoted by Reuters.

At last week's meeting of Organization of Petroleum Exporting Countries (OPEC), the cartel and its partners agreed to extend their production cuts of around 1.6 million barrels a day through the end of March 2018.

Oil prices tumbled below $50 on Friday amid worries that U.S. President Donald Trump's decision to abandon a global climate pact could spark more crude drilling in the United States, stoking a persistent glut in global supply.

U.S. West Texas Intermediate crude CLc1 fell $1.34, or 2.7 percent, to settle at $48.32 per barrel, its lowest close since May 12.Brent's premium over the same U.S. month WTCLc1-LCOc1 narrowed to its lowest in nearly five weeks.For the month of May, Brent fell nearly 3 percent, its fifth straight monthly loss.

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Libya's output was seen returning to a three-year production peak of about 800,000 barrels a day this week, as the flow from its largest oil field recovered from a technical problem.

OPEC and Russian Federation initially agreed to production cuts in late 2016, but chose to extend those cuts another nine months at a meeting in Vienna last month.

Benchmark Brent crude futures were off by 1.8 per cent at $49.73 per barrel at 1415 GMT, down 90 cents from the previous close.

Resurgent supplies from US shale drillers and fading growth in fuel demand mean that world oil markets could face another overhang next year, the banks predict.

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The American summer driving season, which by tradition started on the Memorial Day holiday on Monday, may offer some support for prices, Reuters quoted analysts as saying.

Rising output from Nigeria and Libya, which are exempted from the deal, is also undercutting oil producers' attempt to limit production. "We want to institutionalise cooperation between OPEC and non-OPEC producers", Saudi Energy Minister Khalid al-Falih said.

However, U.S. crude production is rising fast as new technology helps to extract shale oil, making the United States more self-sufficient in energy. While weaker oil price broke another myth or fundamental understanding that a nine-month agreement between the OPEC and N-OPEC countries would immediately boost oil price, it has broken many such myths over the past years and understanding them or at least recognizing them is of utmost importance if one looks to forecast the future price.

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