Investing.com - Crude oil held gains in Asia on Thursday with all eyes on Vienna where OPEC and allied producers are widely expected to extend an oil output cut pact by nine months.
On the New York Mercantile Exchange crude futures for June delivery rose 0.74% to $51.74 a barrel, while on London's Intercontinental Exchange, Brent gained 0.80% to $54.39 a barrel.
The schedule sees the opening session at 10:00 a.m. local time, an hour behind London, for the OPEC leg of the meeting which will end for lunch and then a 3:00 p.m. start for OPEC and key producers with a press conference scheduled at 5:00 p.m.
FXTM Research Analyst Lukman Otunuga said oil prices remained caught between optimism over the OPEC-led deal and U.S. shale limiting upside gains.
"I believe that U.S. shale is a significant threat to the OPEC deal, especially when considering how the surging output from the U.S. has seized market share from other OPEC members ... While it may be too early to say that this is the end of OPEC, U.S. shale has considerably weakened the cartel's grip on the global markets," Otunuga said in a note.
OPEC is widely expected to extend an initial six-month oil output cut pact with allied producers led by Russia to March 2018 at a meeting in Vienna on Thursday that still may produce surprises on new producers joining and a more aggressive tone on compliance.
IHS Energy vice president Victor Shum said supply and demand will be balanced for the rest of 2017 with no sharp drawdowns in inventories even with the production cut extended for another six to nine months. Longer or deeper cuts will take "a lot of time and a lot of diplomacy," he said.
Saudi Energy Minister Khalid al-Falih has led the charge as the world's top exporter and swing producer for the nearly 1.8 million barrels per day cut started in January and agreed to last November that quickly brought prices above $50 a barrel and unleashed a rapid supply response by then struggling U.S. shale oil producers.
Falih said on Monday he expected the new deal to be similar to the old one, "with minor changes." Deutsche Bank (DE:DBKGn) said the market had priced in a nine-month extension.
"The inclusion of smaller producing non-OPEC countries such as Turkmenistan, Egypt and the Ivory Coast would be a negligible boost, in our view," Deutsche said. "A deepening of cuts, though, has more potential to provide an upside surprise." Still, OPEC is far from cohesive as a cartel with Iran and Saudi Arabia often at loggerheads on other diplomatic issues, while other countries have seemed to pay lip service to the cuts and used the situation to gain market share instead.
Overnight, crude futures settled lower on Wednesday, despite the release of a bullish report from the Energy Information Administration (EIA), showing U.S. crude inventories fell more than expected in the previous week, extending the dip in U.S. crude stockpiles to a sixth-straight week.
For the week ended May 19, the EIA said that crude oil inventories fell by 4.43 million barrels, compared to expectations of a draw of around 2.4 million barrels.
Meanwhile, gasoline inventories dropped by only 0.485 million against expectations for a draw of 0.74 million barrels while distillate stockpiles fell by 0.485 million barrels, compared to expectations of a 0.74 million decline.
The lower than expected drawdown in gasoline inventories offset the large drop in crude inventories, as investors remained concerned over the recent slowdown in gasoline demand.
The data came a day ahead of the Organization of the Petroleum Exporting Countries (OPEC) meeting on whether to extend the current supply-cut agreement.
Crude futures have soared above $50 a barrel, as investors optimism grew that OPEC would seek to extend the supply-cut agreement for a prolonged period.
Kuwait, Iraq, Oman and Venezuela supported the Saudi-Russia agreement that production curbs needed to be extended for a period of nine-months until March 2018, to reduce global supply to the five-year average.
"There has been a marked reduction to the inventories, but we're not where we want to be in reaching the five-year average," Falih said last week.
Kuwaiti Oil Minister Issam Almarzooq, however, said Tuesday some countries are not in favour of a nine-month extension, but there’s a preliminary agreement on a six-month deal that will be reviewed in November.