Big crude drawdown supports prices, tames oversupply fears

Still, oil markets received some support from official USA data which showed crude inventories fell sharply last week as refining and exports surged to record highs.

Brent crude, the global oil benchmark, fell 1.8% to $49.71 a barrel on London's ICE Futures exchange.

Meanwhile, the U.S. Department of Energy reported that crude stockpiles were down to 6.4 million barrels in the week to May 26, beating analyst expectations for a decrease of 2.5 million barrels.

Official government data showing weekly USA crude inventories will be published on Thursday.

U.S. President Donald Trump's withdrawal from the Paris agreement, the landmark 2015 global pact to fight climate change, drew condemnation from Washington's allies and many in the energy industry - and sparked fears that U.S. oil production could expand more rapidly than it is now.

The contracts fell about 3 percent to three-week lows on Wednesday after news that an increase in Libyan oil production had helped to boost OPEC crude output in May, representing the first monthly rise this year.

Compliance by those signed up to the Opec-led deal remained high among Opec members and industry sources said Russian figures for May showed output in line with its pledge.

OPEC members Libya and Nigeria are exempt from the cuts, while USA shale oil producers are not part of the agreement and have been ramping up production.

Tensions in West Asia, where top oil exporter Saudi Arabia cut ties with top liquefied natural gas (LNG) shipper Qatar over concerns about terrorism and extremism, also pushed up crude futures, traders said.

Surging U.S. production has put a strain on OPEC members' efforts to curb production cuts in a bid to drain a global crude supply overhang and to prop up prices.

"Trump seems to be removing any barriers he can find that would obstruct growth of crude oil or natural gas", said Stewart Glickman, energy equity analyst at CFRA in NY.

Crude prices fell from over $100 per barrel in summer 2014 to under $40 a barrel in early 2016. If that coincides with strong shale-oil growth, the market looks to be oversupplied again, he said.

Traders said the price declines were a result of higher output in conflict-torn Libya, which was adding to a relentless rise in US production.

United States production could be up to 800-1,000 million barrels per day higher year on year by end-2017, according to the Fitch forecasts. Total motor gasoline supplied (the agency's measure of consumption) averaged 9.6 million barrels a day for the past four weeks, down by 0.7% compared with the same period a year ago.

  • Zachary Reyes