Oil prices near 5-month low as global oversupply weighs

Oil prices near 5-month low as global oversupply weighs

Oil prices near 5-month low as global oversupply weighs

Oil prices fell further on Friday to be mired at five-month lows after tumbling in the previous session, as concerns about global oversupply wiped out all of the price gains since the move by the Organization of the Petroleum Exporting Countries (OPEC) to reduce output.

Both benchmarks lost 4.9 percent Thursday, falling to their lowest level since November 30 - the day when OPEC members and Russian Federation agreed to cut their individual oil production to increase prices.

Brent crude was trading at $48.22 a barrel on Thursday evening - a daily loss of 5% - building on earlier falls sparked by weak Chinese economic data and higher-than-expected United States oil inventories.

The global benchmark crude traded at a premium of US$2.57 to July West Texas Intermediate.

Global crude inventories have begun to erode, but fast-growing production outside the signatories to the deal, who pledged to remove 1.8 million bpd in supply from the market, have severely tested investors' faith in the ability of the world's largest exporters to tackle the glut.

Other analysts agreed the steep price falls would likely force Opec members to extend production cuts later this month, but they said the prospect of deeper cuts appeared slim. But despite the OPEC action, McGillian said, "We still have a near record overhang and signs of increasing production in areas of the world outside the producers that agreed to the cuts".

A glut of crude oil on the market helped push crude oil prices to historic lows past year, but the modest recovery has led to plans of expansion for major oil companies. "We've dropped to a five month low".

Moreover, the recent EIA report on U.S. crude oil inventory declining only by 900,000 barrels as against market expectation of a 2.3 million barrel decline continue to weight down on market sentiments.

Meanwhile, Iran says it will go along with the OPEC consensus when the cartel meets later this month to decide if the deal will be extended beyond June.

"The energy complex is slowly succumbing to an opinion that this year's OPEC production cuts have been ineffective", Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note. Whilst they could agree to extend or deepen the agreement, analysts see mixed signals from (non-Opec) Russian over its intentions.

"What we've seen in terms of the rebound today is really just a bit of a correction following an oversold market over the past several days", Michael Tran, a commodities strategist at RBC Capital Markets in NY, said by telephone.

Prices also fell as risks to crude production in Libya, which is not part of the OPEC deal, eased following news that two factions made progress toward a resolution of the nation's political crisis that has, at times, disrupted crude production.

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