Oil markets remain cautious on record supplies

The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries meet on May 25 to discuss extending curbs agreed past year that cut crude oil output by 1.8 million barrels daily, two-thirds of that from OPEC.

U.S. West Texas Intermediate (WTI) crude oil futures CLc1 dropped 39 cents to settle at $49.23 a barrel, after reaching a high of $50.22 a barrel earlier in the day.

Oil prices are up about 20 per cent from last year's average of US$45 per barrel for North Sea Brent, although they have not been able to push past the mid-to-high $50s because of worries that inventory levels remain stubbornly high.

"If OPEC doesn't extend those cut agreements, oil prices will fall under much more pressure".

Khalid al-Falih's comments on Thursday carry significant weight as Saudi Arabia remains a powerhouse among oil producers.

Russian Energy Minister Alexander Novak said on Friday a decision on extending the pact had not yet been taken, but would be discussed with OPEC on May 24. While the group has fully implemented its pledged cuts, that's being offset by US shale oil producers buoyed by price gains, according to Commerzbank.

OPEC is keen that non-OPEC play its part in reducing world inventories to support a price rise that has stalled near $55 a barrel.

The report from the U.S. Energy Information Administration also showed slight production increases in the U.S. That reinforced widespread anxiety that U.S. shale producers are becoming more capable of increasing output even with prices half of what they were three years ago.

The Relative Strength Index (RSI), which measures momentum in asset pricing, fell below 30 for both oil benchmarks for the first time in nearly a month. Crude now trades over $50 a barrel. OPEC, under Saudi leadership, appears determined to see through its efforts to drain global inventories back to five-year average levels, but it is also keeping a wary eye on the impact of higher crude prices on the USA shale patch. S. producers will increase output anew, potentially sending stockpiles higher again. Libya's El-Feel oil field is ready to resume production after a two-year halt in operations that crimped the OPEC nation's output, but there's a problem: It doesn't have enough electricity to pump the crude.

This was primarily attributed to excessive stockpiles and refinery maintenance season, which in the US led to a string of seven-figure inventories increases, making markets nervous.

Al Rumhy said Iran and Venezuela, both members of OPEC, have expressed support for an extension of the production cuts.

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