By Jon Sindreu 

Crude prices fell Thursday after major oil producers extended output cuts by less than some investors had hoped, with some analysts questioning whether the deal will be enough to break the market out of its current range.

The Organization of the Petroleum Exporting Countries on Thursday renewed an agreement to withhold some crude-oil supplies into March 2018, people familiar with the matter said, doubling down on its bet that it can raise prices despite soaring output from American shale producers.

U.S. crude oil dropped 1% to $50.85 a barrel, while Brent crude, the global benchmark, fell 0.8% to $53.52 a barrel.

Oil futures are likely to remain volatile through Thursday, with non-OPEC producers, including Russia, slated to meet with the cartel to decide on their own output levels later in the day.

Thursday's agreement will extend by nine months a deal made at the end of last year to cut oil production. Oil prices had already edged down earlier, when Saudi energy minister Khalid al-Falih said it was "highly likely" this would be the decision of OPEC, which is meeting in Vienna.

"The problem was that OPEC had come up with a statement saying they'd do 'anything it takes,' so people were expecting just a little bit more from the meeting," said Nitesh Shah, commodities strategist at ETF Securities, who believes crude is unlikely to go much above $55 this year.

Stuart Ive at OM Financial said oil is likely to trade from $50 to $60 a barrel in the near term due to the extension. For a further rally OPEC and partners would have needed to cut more, he said.

Still, many analysts also pointed out that Thursday's decision had been well telegraphed by Saudi Arabia. That suggests that OPEC has been successful in reaching consensus, a positive going forward.

"The bottom line is that Saudi has managed to get a consensus ahead of the meeting for this meeting to take place in a non-confrontational way, " said Harry Tchilinguirian, oil strategist at French bank BNP Paribas. "We've never had this consensus going into this OPEC meeting for a long time."

Mr. Tchilinguirian thinks oil prices will go above $60 this year, and left the forecast untouched after the announcement. So did consultancy Wood Mackenzie, which believe prices will be $55 this year.

After gaining some 20% on the back of last December's cuts, crude has traded between $48 and $57, as greater optimism about global demand has been offset by larger-than-expected stockpiles. OPEC aims to cut them back to their five-year average, but this target has so far proved elusive.

The budgets of major producers, like Saudi Arabia, have been under pressure from a reduction of oil revenue since prices plummeted in 2014. OPEC and its allies want to push prices up by freezing output, but higher prices induces greater competition from U.S. shale producers, which are leaner and faster operations, which then pressures the market lower. Despite OPEC's cuts, stockpiles have risen above historical averages.

Still, many analysts believe that concerns about inventories will ease as demand picks up further this summer.

"If they can keep prices in this range until demand picks up, and not suffer too much, maybe they can push prices to $70 and even $80 in a few years," said Michael Poulsen, oil risk manager at Denmark-based Global Risk Management.

U.S. crude inventory data released Wednesday by the Energy Information Administration was broadly upbeat for producers, showing the lowest overhang since December 2014.

"All of the sudden, reducing OECD stocks to the 5-year average by March next year does not seem mission impossible," said Tamas Varga, analyst at London-based PVM brokerage.

Nymex July diesel futures dropped 0.5% to $1.605 and ICE gasoil lost 0.7% to $476.75 per metric ton.

Biman Mukherji contributed to this article.

Write to Jon Sindreu at jon.sindreu@wsj.com

(END) Dow Jones Newswires

May 25, 2017 09:35 ET (13:35 GMT)

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