By Julia Simon
NEW YORK (Reuters) - Oil prices inched up on Tuesday in volatile trading as expectations of an extension to OPEC-led supply cuts and another drop in U.S. crude inventories overshadowed a White House proposal to sell half the country's petroleum reserves.
Brent crude (LCOc1) traded up 9 cents at $53.96 per barrel by 11:49 a.m. U.S. light crude (CLc1) was up 12 cents at $51.25.
The Organization of the Petroleum Exporting Countries (OPEC) meets in Vienna on Thursday to consider whether to prolong the deal reached in December in which OPEC and 11 non-members, including Russia, agreed to cut output by about 1.8 million barrels per day in the first half of 2017.
OPEC will likely agree to extend production cuts for another nine months, delegates said on Tuesday as the oil producer group meets this week to debate how to tackle a global glut of crude.
OPEC's de facto leader, Saudi Arabia, favors extending the output curbs by nine months rather than the initially planned six months, as it seeks to speed up market rebalancing and prevent oil prices from sliding back below $50 per barrel.
"It continues to be a momentum driven trade ahead of OPEC’s meeting," said Tony Headrick, energy market analyst at CHS Hedging. "We continue to build in what the market expects is an extension of cuts."
U.S. crude oil inventories were seen falling for the seventh straight week, dropping 2.7 million barrels in the week to May 19, according to analysts ahead of weekly inventory reports from the industry group American Petroleum Institute (API) and the U.S. Department of Energy's Energy Information Administration (EIA). [EIA/S]
Earlier in the session oil prices dropped on the White House plan to sell off half of the nation's 688 million-barrel oil stockpile from 2018 to 2027 that aims to raise $16.5 billion and help balance the budget.
The budget, to be delivered to Congress on Tuesday, is only a proposal and may not take effect in its current form.
"Congress needs to agree to this which is rather uncertain," said Carsten Fritsch, commodity analyst at Commerzbank (DE:CBKG).
The White House proposal would roll out over a 10-year period so the sales would only average less than 100,000 bpd, said James Williams, president of energy consultant WTRG Economics in London, Arkansas.
Aside from the first day of the roll out, a one-time spike in supply, "the impact on prices would be negligible," he said. "This is a little over one tenth of one percent of global daily consumption - that does not move markets."
Releasing reserves would add supplies to already high and rising U.S. production