Price of oil sinks amid oversupply concerns
Oil prices slipped on Friday, retreating from the previous day’s gains under pressure from a stronger U.S. dollar and rising shale oil output, but losses were limited by expectations that producing countries will eventually cut enough output to reduce a global glut.
Rising U.S. output has helped boost domestic crude and fuel inventories to record highs. Still, the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russia agreed to cut output almost 1.8 million barrels per day (bpd) during the first half of 2017.
Estimates suggest compliance by OPEC is around 90 per cent, and Reuters reported on Thursday that OPEC could extend the pact or even apply deeper cuts from July if global crude inventories fail to drop to a targeted level.
“It’s encouraging that it may not be a six-month deal but one of the issues is if you look at OPEC and other members basically reducing their supply and U.S. shale producers profiting from it, that’s going to produce some turmoil,” said Mark Watkins, regional investment manager at U.S. Bank Private Client Group.
“At some point, it’s going to be difficult for that agreement to stay in place when member countries can drill more and make more money.”
Brent crude futures were down 16 cents at $55.49 per barrel by 11:26 a.m. EST (1626 GMT). U.S. West Texas Intermediate (WTI) crude futures were down 30 cents, or 0.6 percent, at $53.06 per barrel. Both oil contracts appeared on track for losses on the week. For U.S. crude, it would be the first decline in five weeks.
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Gasoline futures again led the complex lower, falling nearly 2 percent.
Brent and WTI have traded within a $5 per barrel price range this year, in what has become the longest and most range-bound period since a price slump began in mid-2014.
A strong U.S. dollar has pressured crude prices. On Friday, the dollar was trading 0.4 percent higher versus a basket of currencies.
In Asia, oil inflows remained as high as they were before the production cuts, Thomson Reuters data showed, with exporters fighting for market share.
There were signs of faltering demand growth in core markets China, India and the United States.
In India, fuel demand growth fell in January, while in China sagging car sales and soaring gasoline and diesel exports also point to a slowdown in growth. U.S. gasoline cracks slid to a one-year low on Friday on fears of excess supply and weakening demand growth.
Additional reporting by Libby George in London, Henning Gloystein in Singapore; Editing by David Gregorio
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