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The sell-off followed strong first quarter results from so-called “Big Oil” that trumpeted their ability to adapt to the price slump, with the majority now able to cover capital expenditure and dividends at $50 a barrel.
The US shale sector has also effectively squeezed down costs, with US energy companies more than doubling the amount of active drilling rigs from a year ago, raising their oil production forecasts.
Stephen Brennock at oil brokerage PVM said that last week’s sell-off was triggered by a number of factors, including uncertainty about Russia’s willingness to keep backing the supply cuts at a time when they had yet to significantly tighten supplies.
“It was most probably a culmination of scant evidence that Opec has made a dent in the supply overhang and a bearish midweek update on US oil inventories showing US crude output inched higher for the 11th consecutive week,” Mr Brennock said.
Hedge funds that had amassed a record bet on oil’s recovery at the start of this year have been dumping positions, with data on Friday showing net longs in US benchmark West Texas Intermediate futures were down to 163m barrels as of May 2 from a high of more than 400m barrels in February.
The combined Opec and non-Opec cut of around 1.8m barrels a day, which was agreed in late November, is not at the moment expected to be increased in size.