Oil edges off three-month low, but glut worries fester

By Aaron Sheldrick

TOKYO (Reuters) – Crude prices inched up on Friday after dropping to their lowest in more than three months the session before, pressured by concerns that a global supply glut is proving stubbornly persistent.

U.S. West Texas Intermediate crude (WTI) <CLc1> was up 17 cents, or 0.4 percent, at $49.45 a barrel at 0746 GMT. It fell below $50 on Thursday for the first since mid-December, when OPEC and other producers agreed to cut output.

Brent crude <LCOc1> was up 12 cents, or 0.2 percent, at $52.31 a barrel, having settled down 1.7 percent in the previous session and slumping 5 percent the day before in its biggest percentage decline in a year.

WTI is on track for a 7.2 percent decline this week, the biggest weekly drop since early November. Brent is heading for a 6.4 percent fall, also the biggest since early November.

Market confidence has taken a hit after a period of higher prices enticed more U.S. shale oil companies to drill more wells and as stockpiles have remained high.

“Steep price falls in the last two days amid building U.S. inventories show that the market remains concerned about the supply-demand balance,” NAB Group Economics said in a research note.

Data showed crude stocks in the United States, the world’s top oil consumer, swelled by 8.2 million barrels last week to a record 528.4 million barrels. [EIA/S]

U.S. drilling has also picked up, with producers planning to expand crude production in North Dakota, Oklahoma and other shale regions, while output has jumped in the Permian, America’s largest oilfield.

That has undermined the bullish sentiment generated after the Organization of the Petroleum Exporting Countries (OPEC) and major producers including Russia agreed to cut production in the first half of this year to drain a global glut.

“Should data continue to confirm that the OPEC-Russia deal is holding, we expect a gradual uptrend this year, although if inventories remain elevated a rally will be less likely,” NAB said.

Senior Saudi energy officials told top independent U.S. oil firms in a closed-door meeting this week that they should not assume OPEC would extend output curbs to offset rising production from U.S. shale fields, two industry sources told Reuters on Thursday.

Energy ministers and senior oil executives are meeting this week at CERAWeek in Houston, the biggest U.S. gathering of the oil industry.

(Reporting by Aaron Sheldrick; Editing by Richard Pullin and Gopakumar Warrier)