LONDON, May 28, (AFP): World oil prices may struggle to sustain a push beyond $50 a barrel after hitting the key level for the first time this year, analysts warned Friday. Crude futures topped $50 a barrel on Thursday, as production disruptions in Canada contribute to a drop in US crude inventories. Prices have won support also from unrest in Nigeria, Africa’s biggest crude producer.
Prices slipped back Friday however, as analysts warned that the week’s move above $50 could trigger some North American producers of crude extracted from shale rock to lift output.
Slumping prices, resulting in crude trading at under $30 a barrel in February from above $100 two years ago, made it unprofitable for some shale companies to compete with traditional producers like OPEC and Russia.
Futures had plunged over a 21-month period owing largely to a global supply glut, fed by rising production of shale oil.
Oil at $50 is meanwhile viewed as a level at which it makes economic sense for certain suppliers to start pumping again, CMC Markets trader Alex Wijaya told AFP.
“Crude oil prices have failed to hold above the $50 level due to concerns that higher prices could unlock more supply,” he said Friday.
Traders are now eyeing next week’s meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna to discuss world production levels.
“There is probably a sliver of hope that OPEC producers will hammer out an agreement to support oil prices, be it to freeze production or otherwise,” said IG Asia analyst Bernard Aw.
OPEC member Iran, which returned to world markets in January after the lifting of Western sanctions linked to its nuclear programme, has so far refused to curb production.
Tehran’s stance appeared to reinforce market doubts that OPEC would take any firm action to curb oversupplies.
In addition, “OPEC will no doubt use the recent supply disruptions in Canada, the falling output in the US and the firmer oil prices as reasons not to cut production”, said Fawad Razaqzada, market analyst at trading group City Index.
“In the likely event the OPEC maintains status quo, oil prices may fall, at least initially anyway.”
Razaqzada said the biggest risk to the crude market would be if OPEC did cut production.
“This potential scenario would almost certainly lead to a sharp rally in oil prices,” he added.
Brent North Sea crude, the world’s benchmark oil contract, reached $50.51 a barrel on Thursday — the highest level for almost seven months.
US benchmark, West Texas Intermediate, meanwhile reached $50.21 a barrel.
“Having momentarily surpassed the $50 hurdle, Brent and WTI suffered from profit-taking in the second half of Thursday’s session, before extending their losses slightly on Friday,” said Razaqzada.
“Despite the pullback, both oil contracts still looked set to close higher for the third straight week.”
Around 1615 GMT on Friday, WTI for delivery in July stood at $49.17 a barrel, which compared with $47.75 for the June contract one week earlier.
Brent North Sea crude for July traded at $49.22 a barrel, up from $48.72 a week earlier.
Prices were supported by official data Wednesday that showed US commercial crude inventories fell by 4.2 million barrels last week, indicating strong demand in the United States, the world’s top oil consumer.
Official data Friday showed that the US economy grew slightly faster in the first quarter of 2016 than originally thought, hitting a 0.8-percent annual pace.
However the revision, from the original estimate of 0.5 percent growth, was not as high as economists had expected, underscoring some persistent weaknesses, especially in manufacturing.