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Oil tumbles amid oversupply fears, unlikelihood of deeper OPEC cuts
May 4, 2017 / 12:03 AM / 5 months ago

Oil tumbles amid oversupply fears, unlikelihood of deeper OPEC cuts

FILE PHOTO: Pump jacks are silhouetted against the rising sun on an oilfield in Baku, Azerbaijan, January 24, 2013. REUTERS/David Mdzinarishvili/File Photo

NEW YORK (Reuters) - Oil prices plunged to five-month lows on Thursday amid record trading volume in Brent crude, as OPEC and other producers appeared to rule out deeper supply cuts to reduce the world’s persistent glut of crude.

Closing prices, below $50 a barrel, were the lowest since Nov. 29, thereby erasing all the market gains that followed a late 2016 announcement by the Organization of the Petroleum Exporting Countries it would cut output.

The slide steepened after the OPEC delegates downplayed the chance that their group and other producing countries would deepen their output cuts when they meet on May 25. They did say current output cuts were likely to be extended.

But analysts say non-OPEC members may struggle to extend production cuts.

U.S. crude CLc1 ended the session 4.81 percent lower at $45.52 per barrel after falling as much as 5.29 percent to an intraday bottom of $45.29, the lowest since Nov. 29.

Brent crude LCOc1 settled at $48.38, or 4.75 percent lower, after tumbling as much as 5.17 percent during the session.

Front-month Brent crude trading volume rose to the highest on record with nearly 525,000 lots changing hands, according to Reuters data that extends back to 1988.

Front-month WTI volume rose to more than 898,000 contracts, the highest in nearly two months.

Commodity Trading Advisors were among those liquidating their contracts in the day, traders said.

”While the cartel is expected to extend a self-imposed production cap by another six months, it will be a challenge to convince several non-OPEC members to follow suit,“ said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics. ”Persistent growth in US oil production ... will also make extensions of the OPEC cap beyond 2017 unlikely.”

There was also a sign of slowing energy demand in China, the world’s second largest oil consumer, when a survey showed growth in that country’s services sector in April was at its slowest in almost a year.

Both benchmarks tested major support levels, with U.S. crude falling well below the key price of $47.23, according to traders and analysts.

Dean Rogers, senior technical analyst at Kase & Co, said charts showed the next potential stalling points were $44.20 for WTI and $47.20 for Brent.

“Sustained closes below this levels would be extremely bearish for the long-term,” he said.

U.S. equities also were lower, with losers led by the energy sector .SPNY, which fell 2.24 percent to its lowest since August.

Late last year, OPEC and other producing countries announced production cuts of 1.8 million barrels per day for the first six months of this year.

Even so, 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.”

Crude output has surged in the United States, with increasing rig counts for the past 11 months.

Russia’s energy minister, Alexander Novak, said in written comments on Thursday that his country is inclined to extend its cuts.

But many in the market believe steeper cuts are needed to reduce the glut significantly.

“At some point, the market should recognise OPEC isn’t the most important player in the market any more,” said Commerzbank’s Eugen Weinberg, “That is non-OPEC, and, above all, U.S. shale.”

Additional reporting by Amanda Cooper in London, Naveen Thukral in Singapore; Editing by David Gregorio and Steve Orlofsky

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