Oil prices pared early gains on Thursday despite USA industry data showing a big drop in crude stocks last week, with investors sceptical that OPEC-led cuts will be enough to rebalance an oversupplied market. This was greater than expectations for a decrease of 2.5 million barrels. According to Platts Oil Futures editor Geoffrey Craig, U.S. crude oil inventories have reduced the surplus to the five-year average by 17 million barrels since the beginning of the year.
USA crude production rose almost 500,000 barrels per day (bpd) last week from year-earlier levels.
U.S. West Texas Intermediate crude futures dropped 45 cents, or 0.93 percent, to $47.91 per barrel.
Meanwhile, all eyes will be glued to Thursday's U.S. Energy Information Administration report on stockpile futures.
Last week 22 OPEC and non-OPEC nations agreed to extend crude oil production cuts - previously announced in November 2016 - for an additional nine months, sidelining 1.8% of total global supply until the end of March 2018. "We want to institutionalise cooperation between Opec and non-Opec producers", Saudi Energy Minister Khalid Al Falih said.
So far, the production-cut agreement has had little impact on global inventory levels due to rising supply from producers not participating in the accord, such as Libya and Nigeria, and a relentless increase in USA shale oil output. Russia's most powerful oil boss said output curbs by the country and OPEC probably won't succeed over the long term.
To supply power for air conditioning in the scorching summer months, the Kingdom's oil demand typically increases by about 0.3 million bpd.
The increase in US drilling activity and shale production has mostly offset efforts by OPEC and other producers to cut output in a move to prop up the market.
National Oil Corporation of Libya estimates that Libya's crude oil output rose to 827,000 bpd (barrels per day) in May 2017.
Today's falls in oil extended those seen on Tuesday, when bears sold on doubts that cartel Opec's extended production cuts would alleviate the global glut.
That's because crude production in the United States, which is not participating in the cuts, has jumped by over 10 per cent since mid-2016 to 9.34 million bpd, close to levels by top producers Saudi Arabia and Russian Federation. Overall, U.S. carbon emissions have been declining for several years, last year falling to levels not seen since 1992, in part as increased natural gas usage has displaced dirtier coal.
Abhishek Deshpande, Natixis SA's chief energy analyst, told Bloomberg that any impact on USA crude stockpiles will be "extrapolated globally".
"Investors continue to doubt the ability of OPEC to rebalance the oil market, with crude oil prices remaining under pressure amid further signs of rising USA oil production", ANZ bank said on Monday.