Oil prices drift south as investors ponder the post-OPEC meeting

29/05/2017 09:00 AST

Oil prices slowly trended lower on Monday, reversing some of the gains seen ahead of the close in the U.S. on Friday, as the post-OPEC environment continues to develop.

Crude futures slumped nearly 5% on Thursday after the production-cut deal led by the Organization of the Petroleum Exporting Countries was extended by nine months but not deepened--disappointing some who anticipated output cuts would increase. Oil, though, finished up nearly 2% Friday thanks to the late U.S. gains.

Because of holidays Monday in China, the U.K. and the U.S., trading is set to be thin throughout Monday’s global session. That, though, could exacerbate movements one way or the other.

In recent trading, West Texas Intermediate crude for July delivery CLN7, -0.32% on the New York Mercantile Exchange recently traded 0.3% lower at $49.65 a barrel in the Globex electronic session. Brent crude LCON7, -0.29% , the global benchmark, eased 0.1% to $52.10.

Daniel Hynes, commodities analyst with ANZ Bank, anticipates oil prices rebounding into the third quarter “as the reality of production cuts hits the markets. But the upside may be limited.” He sees oil possibly making a run toward $60 next quarter.

A potential near-term catalyst could be U.S. inventory data on Thursday; they will be delayed a day this week because of the Memorial Day holiday. U.S. oil inventories have fallen for six straight weeks, government data show. That’s a good sign as global supplies remain well above the 5-year average, which is where participates in the production cuts want inventories to get back to.

“The market will remain hesitant and wait for data confirmation before prices can move materially higher,” said RBC. It added the production-cut extension should result in a price floor slightly above $50 a barrel.

The investment bank remains bullish longer-term on oil. RBC’s prediction is for WTI “to move into the mid-to-high-$60/barrel range as global balances tighten” in the second half of 2017.

However, there remains danger that if prices sufficiently rise, financially fragile countries might pull back on their compliance thus far to the production cuts. Any such output boosts could then crimp any price gains.

Nymex July gasoline futures RBN7, -0.41% were recently down 0.3% at $1.6210 a gallon, diesel eased 0.2% to $1.5645 and ICE gasoil rose 0.3% to $462.50 per metric ton.

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