Oil skids lower on Saudi comments before OPEC meeting

LONDON: World oil prices briefly sank by two dollars on Thursday after OPEC kingpin Saudi Arabia appeared to rule out deep production cuts at a meeting of the cartel.

Crude futures later clawed back ground as traders awaited the conclusion of the latest gathering of the Organization of the Petroleum Exporting Countries (OPEC) in Vienna.

Saudi Arabia expects the likely extension of a deal to cut output to ease the global crude glut sufficiently by early 2018, Riyadh's oil minister Khalid al-Falih indicated.

"Today's trade will likely be dominated by the outcome of the latest OPEC meeting, with members convening in Vienna to discuss the organisation's production strategy," said analyst David Cheetham at brokerage XTB.

"Comments from the Saudi oil minister that a nine-month extension is the 'safe bet', and that deeper cuts were not necessary, caused a near panic reaction this morning with Brent oil dropping almost $2 in the minutes that followed," the expert said.

"The price has recovered somewhat since then, but the decline is an early indication as to how high expectations are at present in the market," Cheetham continued.

"Should an extension be deemed insufficient to support the oil price, then the outlook could become quite grim (for prices) going forward," he added.

OPEC, which pumps about one third of the world's crude, uses oil production as a tool to support price levels and thus protect precious revenues of its 13 members.

Late last year, 24 countries -- including OPEC nations and Russia -- agreed to cut production by 1.8 million barrels per day in order to reduce global oil inventories to the five-year average, curbing the stubborn supply glut.

This has helped oil prices surge from $26 barrel in early 2016 to around $50 now, and the producers were expected to agree a nine-month extension later Thursday.

In midday deals, Brent North Sea crude for July delivery stood at $53.07, down 89 cents from Wednesday's close.

New York's main contract, West Texas Intermediate (WTI) crude for delivery in July, shed 92 cents to $50.44 a barrel.

- Equities push higher -

Elsewhere on Thursday, Europe's main stock markets drifted higher, mirroring gains across Asia, as traders welcomed indications from the Federal Reserve that US interest rates could rise next month.

London's FTSE 100 shares index meanwhile shrugged off official data showing that Britain's first-quarter economic growth was downgraded to 0.2 percent from 0.3 percent.

Minutes from the Fed's May policy meeting showed board members thought that if jobs growth remains healthy with a rebound in investment and consumer spending then rates could rise "soon", which many took to mean June.

While the economy has shown some signs of weakness, the bank still thinks its broad strength would justify winding down its balance sheet, essentially sucking cash out of the system and putting upward pressure on borrowing costs.

The news helped propel Wall Street to a fifth-straight day of gains, with the S&P 500 hitting another record, as the sharp losses suffered last week were reversed.