Oil extends gains on hopes US supply has peaked and will start falling

On Tuesday crude-oil futures extended gains on expectations that U.S. shale oil production has reached its peak and might begin to fall.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in May rose 45 cents, or 0.9%, to $52.36. May Brent crude on London’s ICE Futures exchange climbed 37 cents, or 0.6%, to $58.30 a barrel.

Drilling productivity report released Monday by the U.S. energy department showed that oil production from the seven shale regions is expected to fall by 57,000 barrels a day in May from April levels.

Collapse in U.S. drilling caused complacency in the market, according to Standard Chartered, and the deceleration in U.S. oil output has been greater than the market is currently pricing in.

“We believe that U.S. shale oil output is already falling, and that current rig counts imply that the month-on-month decline will exceed 70,000 barrels per day by June,”  MarketWatch quotes Paul Horsnell, head of commodities research at Standard Chartered.

Analysts still expect a few more weeks of rising U.S. oil stockpiles to continue as supply is still bigger than demand, keeping U.S. oil prices vulnerable. As OPEC oil production remains high, Brent crude is also struggling to breach the $60 mark.

“U.S. [oil] fundamentals are likely to weaken further in April as the scope for large crude oil inventory builds remains before U.S. refinery runs reach their summer stride in May-June,” BNP Paribas said. The summer driving season typically results in higher fuel consumption.

BNP said even if weekly gains in U.S. crude supply have indeed moderated, a significant supply downturn does not yet appear imminent.

Later Tuesday, the American Petroleum Institute is to release its weekly oil inventory data, and on Wednesday investors expect the data from the U.S. energy department.

China’s GDP numbers due on Wednesday will also be closely eyed.