Oil prices hit seven-month lows on global oversupply

Oil prices fell to seven-month lows on Tuesday after news of increases in supply by several key producers, a trend which has undermined attempts by OPEC and other producers to support the market through reduced output.

Brent futures for August were down 4 cents, or 0.1%, at $47.33 a barrel by 11:39 a.m. EDT (1539 GMT), while U.S. crude for July was down 9 cents, or 0.2%, at $44.65 per barrel the day before the July contract expires.

Oil prices dipped on Monday, weighed down by continuing expansion in USA drilling that had helped to maintain high global supplies despite an OPEC-led initiative to cut production to tighten the market.

It has only been less than a month - 25 May - since the Organisation of Petroleum Exporting Countries (OPEC) announced the extension of crude oil production cuts by nine months to the last day of March 2018 but oil prices are sliding again.

Goldman Sachs predicted that USA crude oil production might also rise by as much as 770,000 barrels per day during the last quarter of last year and this year. USA oil output jumped, reaching 9.3 million barrels a day this month, after troughing at about 8.5 million barrels a day last September.

Libya is pumping the most crude in four years after a deal with Wintershall AG enabled at least two fields to resume production.

Futures tumbled as much as 3.3 percent in NY, heading toward the first bear market since August, as investors focus on rising production from countries that are not part of OPEC's deal. Saudi Energy Minister Khalid Al-Falih told Asharq Al-Awsat in an interview on June 19 that oil inventories globally are down following the deal.

USA drillers have increased the oil-rig count for the 22nd straight week to the highest level since April 2015, according to Baker Hughes Inc. Prices fell by almost 22% to a $43.23 a barrel for West Texas immediate crude from the year's high in January - the cut-off point for entry to a bear market stands at 20%.

If Brent continues to trade at below $50 a barrel over the summer, Opec and its partners will be faced with some hard questions about their market intervention.

U.S. crude oil was 15 cents higher at US$44.35 a barrel.

OPEC supplies jumped in May as output recovered in Libya and Nigeria, both exempt from the production reduction agreement.

He said Libya's restart of its oil wells and United States' additional oil rigs, which would add to the oversupply, is impacting the situation.

"Recent data points are not encouraging", Morgan Stanley analysts said in a research note.

  • Zachary Reyes