Oil prices inched up on Tuesday in volatile trading as expectations of an extension to OPEC-led supply cuts and projections for another drop in U.S. crude inventories overshadowed a White House proposal to sell half the country's petroleum reserves.
The Organization of the Petroleum Exporting Countries meets in Vienna on Thursday to consider whether to prolong the deal reached in December, which saw OPEC and 11 non-members, including Russia, agree to cut output by about 1.8 million barrels per day in the first half of 2017.
OPEC's de facto leader, Saudi Arabia, favors extending the output curbs by nine months rather than the initially planned six months, as it seeks to speed up market rebalancing and prevent oil prices from sliding back below $50 per barrel.
Kuwaiti Oil Minister Essam al-Marzouq said on Tuesday not all OPEC countries and allies supported a nine-month extension. But other delegates told Reuters they predicted a smooth meeting with a nine-month extension likely to be agreed.
"It continues to be a momentum driven trade ahead of OPEC's meeting," said Tony Headrick, energy market analyst at CHS Hedging. "We continue to build in what the market expects is an extension of cuts."
U.S. crude oil inventories are expected to fall for the seventh straight week, dropping 2.7 million barrels in the week to May 19, according to a survey of analysts. A weekly inventory report from the industry group American Petroleum Institute is due out Tuesday, followed by figures from the U.S. Department of Energy on Wednesday.
Earlier in the session oil prices dropped on the White House plan to sell off half of the nation's 688 million-barrel oil stockpile from 2018 to 2027 aims to raise $16.5 billion and help balance the budget.
The budget is only a proposal and may not take effect in its current form.
"Congress needs to agree to this which is rather uncertain," said Carsten Fritsch, commodity analyst at Commerzbank. "But of course, it could weigh on the back end of the forecast."
Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore said the White House proposal was a surprise, but added that over a 10-year period the sales would only average around 95,000 bpd.
"It's not huge, but it won't help Saudi efforts," he said.
Releasing reserves would add supplies to already high and rising U.S. production of 9.3 million bpd, not far off levels of top suppliers Saudi Arabia and Russia. The bigger effect could be over the long-term, as the value of oil reserves to be sold is scheduled to rise.
Goldman Sachs has already warned of "risks for a renewed surplus later next year if OPEC and Russia's production rises to their expanding capacity and shale grows at an unbridled rate."