Oversupply fears push oil prices to five-month lows

Cornelia Mascio
Mag 6, 2017

While both contracts edged up slightly in Asia, they are now sitting at their lowest levels since OPEC and Russian Federation agreed in November to cut back production in a bid to raise prices.

The break below $50 a barrel will likely prove temporary given that OPEC is widely expected to extend its supply deal at its meeting on May 25 beyond the June expiry date, but analysts say more price weakness can not be ruled out.

In Sydney, Woodside Petroleum lost more than two percent, Santos sank 2.6 percent and miner Rio Tinto lost 1.7 percent, with tumbling metals prices also acting as a drag.

OPEC began production cuts on January 1 in a bid to reduce swollen global inventories and bolster the price of oil, which is still stuck at half its 2014 level.

There is now the possibility prices will remain below the critical $50 threshold if USA oil production continues to increase, and OPEC and Russian Federation fail to extend the production deal into the second half of the year.

Oil prices sharply extended losses just before Tuesday's settlement, with US crude breaking below $48 a barrel for the first time in more than a month. It fell 4 percent on Thursday.

Oil prices slumped to five-month lows Thursday, dragging on the already slumping The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures.

That followed assurances from Saudi Arabia that OPEC and non-OPEC countries are close to agreeing a deal to continue their production cuts for a further six months.

Brent crude was off nearly five per cent at $48.40 USA, after going as low as $48.16 US.

OPEC sources said on Thursday OPEC was likely to extend cuts when it meets on May 25 but said a deeper cut was unlikely. Including production from Indonesia, which has suspended its OPEC members, production topped the agreed quota level of 32.5 million barrels a day by 80,000 barrels.

The expectation among analysts is for OPEC and its non-OPEC partners to extend the deal to keep up to 1.8 million bpd off the market later this month, but failure to do so could see disgruntled investors cut their bullish bets on the price. Brent crude, the standard for worldwide oils, fell 15 cents to $48.23 a barrel in London.

The US oil rig count increased for a 15th straight week at the end of April.

Russia's Energy Minister, Alexander Novak, said in written comments his country is inclined to extend its output cuts.

Rosneft PJSC, Russia's largest oil producer, said first-quarter profit climbed 8.3 percent as the effect of higher crude prices was offset by a stronger ruble and production cuts.

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