Oil dropped below $50 a barrel as investors lost faith that an extension of OPEC-led supply cuts will overcome growing U.S. production and ease a global glut.

Front-month futures in New York fell 6.7 percent this week, the biggest loss since early March. While a number of exporters have reached an initial deal to extend the curbs past June, according to Saudi Arabian Oil Minister Khalid Al-Falih, rising U.S. output is raising concern that those cuts will be undermined. OPEC and its allies have failed after three months of cuts to meet their goal of reducing global supplies below the five-year historical average, Al-Falih said.

Oil’s rally has faltered after three straight weekly gains on expectations the Organization of Petroleum Exporting Countries and its allies will extend its supply reductions. Prices dropped 3.8 percent on Wednesday after government data showed U.S. production rose for a ninth straight week, even as stockpiles continued to decline from a record. U.S. explorers added 5 oil rigs this week to cap the longest stretch of gains since 2011, Baker Hughes Inc. data show.

“The drumbeat of bearish data continues to put pressure on the market,” Michael Cohen, head of energy commodities research at Barclays Plc in New York. “The bulls don’t have much of a leg to stand on now.”

West Texas Intermediate for June delivery dropped $1.09, or 2.2 percent, to $49.62 a barrel on the New York Mercantile Exchange. It’s the lowest close since March 29. Total volume traded was about 8 percent above the 100-day average at 2:40 p.m.

Brent for June settlement declined $1.03, or 1.9 percent, to $51.96 a barrel on the London-based ICE Futures Europe exchange. Prices fell 7 percent this week. The global benchmark crude closed at a $2.34 premium to WTI.

Goldman Sachs Group Inc. said there’s no fundamental evidence to justify this week’s selloff in oil prices. The bank finds the drop in U.S. crude supplies encouraging and expects the declines to accelerate through the second quarter amid OPEC cuts and demand growth, analysts including Damien Courvalin and Jeffrey Currie said in a report. Meanwhile, a mid-week slide was driven by oil trading through its 50-day and 100-day moving averages, Goldman said.

See also: Schlumberger feels global drag even as U.S. drilling surges

Gulf Cooperation Council countries agreed to push for an extension to the OPEC-led cuts in a meeting on Wednesday, Oman Oil Minister Mohammed Al Rumhy said in an interview in Abu Dhabi. The GCC comprises OPEC members Saudi Arabia, Kuwait, Qatar and the United Arab Emirates, as well as Oman and Bahrain. GCC states are participating in the current deal to cap output.

A meeting of a technical committee of OPEC and non-OPEC countries in Vienna concluded that a six-month extension of production cuts would be necessary, two delegates with knowledge of the matter said. The committee concluded that combined OPEC and non-OPEC compliance with the accord was 98 percent in March, an improvement from February, one delegate said.

OPEC will decide at a meeting on May 25 whether to prolong its pledged cuts into the second half of the year.

“It all comes down to whether OPEC can deliver inventory cuts,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, said by telephone. “So far we haven’t seen a lot of evidence that they’re succeeding.’

 

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As I said before, OPEC production cuts are no longer effective if it is done in isolation or even with other non-OPEC members. Without inclusion of the U.S. producers into the agreement to ensure worldwide output cut, the oil prices will remain low.

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