Oil prices drifted near the unchanged mark on Friday as expectations for tighter supplies diminished, in part because the market believes Saudi Arabia will fill gaps on the global stage linked to Iran sanctions and as the U.S. continues to expand its own inventories.

Crude futures settled sharply lower Thursday, and have continued to pull back from six-month highs hit last month, with energy markets awaiting the next moves from OPEC as U.S. waivers on Iran oil sanctions expired and as a U.S. government report this week revealed a nearly 10 million-barrel rise in domestic crude supplies. That was the biggest weekly climb of the year so far. The data also revealed that weekly U.S. crude production edged up by 100,000 barrels to a record 12.3 million barrels a day.

Data Thursday from S&P Global Platts Analytics also suggested a rise in drilling activity, with U.S. oil and natural-gas drilling rigs climbing by 18 to total 1,084 this week. Baker Hughes will release its rig-count data Friday.

“We firmly believe that the U.S. will dictate the oil price in the long term. However, in our opinion the market is currently underestimating both the effect of the US sanctions and OPEC’s willingness to defend higher prices,” said Daniel Briesemann, commodities analyst at Commerzbank, in a note.

U.S.-based West Texas Intermediate crude for June delivery

CLM9, +0.83%

was little changed, up less than 0.1%, at $61.93 a barrel, and on track for a weekly wrap near unchanged. It settled at $61.81 on the New York Mercantile Exchange Thursday, the lowest since April 1, according to Dow Jones Market Data.

Global benchmark July Brent crude

LCON9, +0.62%

fell 16 cents, 0.2%, to $70.59 a barrel on ICE Futures Europe. It dropped below $70 on Thursday but finished at $70.75, the lowest for a front-month contract since April 9. It is heading for a roughly 2% weekly drop.

Commodity investors may also be digesting U.S. economic data after a key labor-market report for April showed that 263,000 new jobs were created in the month, helping to drive down the unemployment rate to a 49-year low of 3.6%. A strong jobs report is often seen as a potentially supportive factor for crude demand.

Saudi Arabia, de facto leader of the Organization of the Petroleum Exporting Countries, has pledged to boost oil output if needed, as the Trump administration starts banning all Iran oil exports. But behind the scenes, Riyadh and Washington face a likely showdown over the number of extra barrels the kingdom would supply to global markets to keep crude prices stable. The U.S. is pushing to restart production in a field shared by the kingdom and Kuwait that could unlock half a million barrels a day, people familiar with the matter told The Wall Street Journal.

Yet, Saudi Arabia — in need of higher oil prices to keep its state budget balanced — is lobbying within OPEC to change the way the cartel calculates whether the market is adequately supplied as a way to show the U.S. that no more oil is needed, the report said, citing those sources.

Paul Sheldon, chief geopolitical adviser at S&P Global Platts Analytics, expects Iranian crude and condensate exports to fall below 500,000 barrels a day in the second half of this year, from 1.3 million barrels a day in the first quarter.

Read: Here’s what the expiration of waivers on Iran crude sanctions will mean for oil prices

Also read: The end of Iranian oil waivers and what it means for the OPEC-led output cut pact

On Nymex, front-month June gasoline

RBM9, +0.54%

 rose 0.4% to $2.0264 a gallon, while the June heating oil contract

HOM9, +0.47%

 fell 0.4% to $2.0697 a gallon.

June natural gas

NGM19, -0.97%

 traded at $2.599 million British thermal units, up 0.4%.

On Thursday, the EIA reported that domestic supplies of natural gas rose by 123 billion cubic feet for the week ended April 26. Analysts polled by S&P Global Platts had expected an increase of 118 billion cubic feet.

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2019-05-03