Prices pulled back quickly due to oversupply concerns.

Oil prices rallied to over $50 per barrel for the first time since early June on Wednesday (July 19), but pulled back on Thursday (July 20) due to oversupply concerns.

“The supply glut is still very much the focus,” Naeem Aslam, chief market analyst at ThinkMarkets UK, told MarketWatch. “As long as we do not see the glut fading in a meaningful way, we think the odds are stacked against the upward move for the oil price.”

Prices soared Wednesday as traders turned their attention to Saudi Arabia, the world’s largest crude producer. Reports that the country could cut its crude exports by a further 1 million barrels to bring the market into balance gave a boost to oil prices.

Last year, Saudi Arabia and other OPEC members signed a historic deal with major non-OPEC oil producers, including Russia, to cut output by a total of 1.8 million barrels a day for six months starting in January. In May, they agreed to extend their deal until April 1, 2018.

OPEC oil ministers will gather next week for a monthly meeting focused on monitoring producer compliance with the cuts. Worries about surging production from Libya and Nigeria, two member countries that were not required to cut production due to political instability, continue to increase, but might not be addressed at the meeting.

“We expect the major players to reiterate their commitment to the existing quotas, but not to announce tangible steps to limit production from those countries who have been increasing production,” said Eric Winograd, senior economist at AllianceBernstein.

“That would leave us more or less status quo: loosely enforced quotas and market expectation that any significant rise in price would be met with additional supply,” he added.

The biggest threat to OPEC’s efforts is a surge in US shale production, which has been down for the past three weeks, according to Energy Information Administration (EIA) data. In fact, last week stockpiles fell by 4.73 million barrels, a bigger drop than expected by most analysts.

Despite the declines, inventories remain in the upper half of the average range for the time of year, the EIA says.

On Thursday, September Brent crude lost 40 cents, or 0.8 percent, to reach $49.30 a barrel on the ICE Futures Europe after tapping a high of $50.19. September WTI crude ended at $46.92, down 40 cents, or 0.9 percent.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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