Oil dips on glut concerns, but Mideast tension, falling U.S. stocks support

Oil prices dipped on Wednesday, with Brent crude futures around $50 per barrel, as global fuel markets remained oversupplied, although rising tension in the Middle East and falling U.S. inventories lent some support.

Brent crude futures were trading at $50.05 per barrel at 0242 GMT, down 7 cents from their last close. Brent is almost 8 percent below its open on May 25, when OPEC said they, along with producers outside of the group such as Russia, would extend their oil output cuts through to the first quarter of 2018.

U.S. West Texas Intermediate (WTI) crude futures were at $48.13 per barrel, down 6 cents from the previous close, and 6 percent below its open on May 25.

Traders said an ongoing fuel supply overhang was keeping prices under pressure despite the agreement by Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC produces to extend its cuts of almost 1.8 million barrels per day (bpd) of production.

World fuel production and consumption is roughly in balance, at almost 98 million bpd, although inventories remain somewhat bloated, according to the U.S. Energy Information Administration (EIA).

"Where oil ultimately goes is going to be driven by inventories which are really just a reflection of supply and demand," said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Traders said the market was supported by heightened political tensions in the Middle East and by signs of a gradual drawdown of bloated fuel inventories in the United States.

Commodities brokerage Marex Spectron said it expects a "lower supply of crude oil on the physical market" in the coming weeks, lending oil prices some support.

A campaign by leading Arab nations, including Saudi Arabia, Egypt and the United Arab Emirates, to isolate Qatar is disrupting trade in commodities, including oil.

"It is now becoming clear that port restrictions on Qatari flagged vessels are going to cause loading disruptions," said Jeffrey Halley, senior market analyst at OANDA, another futures brokerage.

"That said, the disruptions are seen as inconvenient rather than systematic and thus will maybe only put a floor on crude in the short term rather than starting a panic rally," he added.

In the United States, crude inventories fell by 8.7 million barrels in the week to May 26, data from the American Petroleum Institute showed late on Tuesday.

Official inventory data from the EIA will be published later on Wednesday.

Marex Spectron said that the demand outlook for coming weeks from refineries was strong, also supporting prices.