U.S. commercial crude stockpiles were expected to have risen last week for the 16th straight week, up from a record 489million barrels, even though drilling activity fell, a preliminary survey by Reuters showed on Monday.
Comments from top Saudi oil officials on Monday reiterated the country's position of keeping production high to meet demand as it maintains its market share. Brent June crude futures had dropped 75 cents to $64.08 a barrel by 0458 GMT. U.S. June crude fell 79 cents to $56.20 a barrel.
The fall in prices "reflects the major gains that have been made in the last few weeks and a little bit of concern over what the inventory numbers in the U.S. might show", said Michael McCarthy, chief strategist at CMC Markets in Sydney.
Brent crude hit a 4-1/2 month high last week, while West Texas Intermediate (WTI) has risen for six consecutive weeks, underpinned by net long positions on both contracts as speculators bet on a decline in U.S. shale output. While a roughly 50 percent drop in global oil prices since June last year has helped economies in Asia, it has posed "difficult challenges" for many oil producers, Saudi Arabian Oil Minister Ali al-Naimi said on Tuesday. "Sudden rises or falls in the cost of oil are not welcome... It's in all our interests to ensure stable prices," he said in Beijing.
The number of active U.S. rigs drilling for oil has fallen to the lowest since 2010 and the U.S. Energy Information Administration expects to see a drop in oil output in May from April, the first monthly decline in four years. "It's pretty clear production is being pulled back and finally we're seeing the impact of lower rig counts," McCarthy said.
"There is potential for a bounce back in inventories if that was only a temporary aberration, but, of course, if the recent trend continues, we should see some support." The two oil benchmarks are sitting just above key technical levels, with Brent above $64-$64.50 and WTI above $56, he said.
Bets on rising Brent crude prices rose for a fifth straight week to a new record, InterContinental Exchange (ICE) data showed on Monday.
--reuters--
