Oil prices were largely steady on Friday, finishing the week with modest gains, but speculators sharply cut long positions during last week's rout, on concerns that an OPEC production cut was failing to reduce a global supply overhang.
Crude traded in a narrow band this week, with Brent and West Texas Intermediate bouncing in a US$2.50 range as investors weighed the impact of the first oil cut from the Organization of the Petroleum Exporting Countries in eight years against rising U.S. shale oil output and high inventories.
Brent crude settled up two cents to US$51.76 a barrel while U.S. light crude ended up three cents to US$48.78 a barrel. Both benchmarks gained 0.8 per cent for the week.
However, oil has not been able to reclaim the range that prevailed through most of 2017 before last week's rout. Instead of rebounding to US$53 a barrel, U.S. crude has remained stuck around US$49. Analysts anticipate that regaining the old levels may be difficult without significant drawdown in inventories.
"I think that most are just reassessing the current state of direction. Everyone who was bulled up the past few months has turned," said Carl Larry, president of Oil Outlooks and Opinions in Houston.
Futures positioning showed that last week's rout pushed many speculators to bail out of long positions. The U.S. Commodity Futures Trading Commission said Friday that net long positions in the crude futures market fell by more than 86,000 contracts, the biggest one-week reduction on record. The data is current through Tuesday, and captures the entirety of last week's selloff.
The potential for increased U.S. production continues to build, as Baker Hughes weekly rig count data showed an increase of 14 drilling rigs in the United States.
The market failed to rebound after Saudi Arabia Minister Khalid al-Falih said on Thursday the cuts by the OPEC and non-OPEC producers could be extended beyond June if oil stockpiles stayed above long-term averages.
Saudi Arabia has cut output by more than its share under the November 2016 deal.
Six of 10 analysts polled by Reuters said they believed OPEC would prolong its output reductions past the deal's six-month duration.
Timothy Evans, analyst at Citi Futures in New York, in a note Friday, said market sentiment may further weaken in the absence of a strong rebound to the previous range.
OPEC and non-OPEC members agreed last year to cut output by a combined 1.8 million barrels per day (bpd) in the first half of 2017. But OPEC's monthly report showed global oil stocks rose in January to 278 million barrels above the five-year average.