Oversupply fears push oil prices to five-month lows
- Author: Zachary Reyes May 06, 2017,
May 06, 2017, 19:22
Oil prices stabilized in Asian trading Friday after hitting a five-month low while regiona.
Brent crude fell 1.8% at $47.49 a barrel, while United States crude dropped 2.1% to $44.58 a barrel.
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.
OPEC and non-OPEC producers agreed in December to cut supplies for six months, helping lift oil prices to about 55 dollars a barrel after a two-year slump.
"The market continues to hunt for a bottom", Gene McGillian, manager of market research at Tradition Energy in Stamford, Connecticut, told CNBC.
The glut in oil sent oil prices crashing in late 2015 and early 2016 and USA shale production, especially in areas like the Bakken fields of North Dakota, took a hit.
OPEC will review policy for the second half of this year at a May 25 meeting.
"This surge in USA oil production is important as it risks offsetting the impact of continued high OPEC compliance which reached 110 percent in April", Goldman said.
Other big losers included Whiting Petroleum Corp., which fell as much as 7.9%; Occidental, which dropped 4.9%; and Carrizo Oil & Gas Inc., which declined 5.9%.
Analysts are expecting Opec to extend the agreement for another six months when the cartel meets later this month, and there appears to be a consensus emerging among nations involved in the original pact to extend the agreement beyond June, according to Saudi Arabia's Opec governor, Adeeb Al-Aama.
"OPEC has been looking down the barrel so to speak, of resurgent supply from Nigeria and Libya amongst OPEC and of course, American shale which combined have completely offset the 1.8 million barrel per day production cut agreement", said Jeffrey Halley, senior market analyst at OANDA, in a note.
As a result, Capital Economics is sticking with its end-2017 forecasts of $60 per barrel for Brent and $58 per barrel for Western Texas Intermediate (WTI), although, the company cautions that prices are likely to be especially volatile over the next few months. Brent crude, the standard for worldwide oils, rose 62 cents to $48.68 a barrel in London.
"Among the fundamentals which could justify that this sell-off and that the present (or even lower) price levels could be sustained, would be demand, with a strong decline in Chinese dynamics and associated global fears having the theoretical potential to remove meaningful volumes from the market".
"There's disappointment that the production cuts we've seen from OPEC and others has not had any impact at this stage on global inventory levels", Sydney-based CMC Markets chief market analyst Ric Spooner said.
"It is now-or-never for oil bulls", said US commodity analysis firm The Schork Report on Friday.
The decline is being driven by expanding USA output before OPEC is set to decide whether to prolong its cuts.
Saudi Arabia produced 9.97 million barrels a day, below its quota level of 10.1 million barrels, and Iraq produced 4.36 million barrels a day, some 9,000 daily barrels above its agreed quota.