Oil prices rose yesterday, a day after sliding to 10-month lows, but market sentiment remained negative due to ongoing pressure from a persistent supply glut despite OPEC-led efforts to balance the market.
Brent crude futures were up 70c at $45.52 a barrel, after falling as low as $44.53. Brent fell 2.6% the previous session to $44.35, its lowest level since November. US crude futures were up 55c at $43.08 a barrel. On Wednesday, they fell as low as $42.05, their lowest intraday level since August 2016.
“Prices were pushed a bit too low,” said Hans van Cleef, senior energy economist with ABN Amro. “The people who believe in higher prices are stepping in.”
Since peaking in late February, crude has dropped around 20%, erasing gains made at the end of last year after OPEC and other countries agreed to cut crude output 1.8m barrels per day for the first six months of 2017.
Last month, OPEC members and other producers extended the output cut deal for nine months. But the global crude glut has persisted, with output rising in Libya and Nigeria, OPEC members exempt from the cuts.
The decline has tested OPEC’s pledge to do “whatever it takes” to support oil prices.
In the US, heavy oversupply in petrol stocks has caused demand on the key Colonial pipeline to hit a six-year low.
“There is nothing fundamentally different about supply and demand to be bullish about. The sentiment is rightfully bearish,” said Sarp Ozkan, analyst at Drillinginfo.com in Denver.
Crude output is still increasing in the US, where some shale producers can produce profitably even if oil prices drop below $40 a barrel.
Oil stocks in the Amsterdam-Rotterdam-Antwerp hub hit 64.2m barrels in the week to June 16, the highest in a year, and some 24% above the January low, according to data from industry monitor Genscape.
“The question is whether OPEC will respond with further cuts or whether it needs to look again at its macro strategy for addressing low prices,” said Michael Burns, oil and gas partner at law firm Ashurst.
Tropical storm Cindy disrupted some operations in the Gulf of Mexico, home to about 17% of US crude and 5% of dry natural gas output, supporting markets modestly.
However, the storm is on the wane and has been downgraded to a tropical depression.
World stock markets edged higher yesterday, buoyed by the slight rebound in oil prices, while the US dollar weakened for a second consecutive session.
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