Oil prices drop on supply glut worries
London (Nov 26) Oil prices fell on Thursday amid signs of robust U.S. production despite data showing a lower-than-expected increase in U.S. oil inventories and a decline in the number of working oil-rigs in the country.
Brent crude LCOF6, -1.30% , the global oil benchmark, fell 0.78% to $45.81 a barrel on London’s ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures CLF6, -0.60% were trading down at 0.37% at $42.87 a barrel.
Prices had rallied briefly Wednesday on news of lower than expected U.S. inventory increases and nine less U.S. oil rigs from last week.
But sentiment changed as analysts digested data from the Energy Information Administration. While U.S. production of crude slid by 17,000 barrels a day to 9.165 million barrels, compared with the previous week, the four-week average daily production of 9.173 million barrels was still 144,000 barrels above the same period last year.
“Investors will be quickly reminded of the persistent supply glut which could see any substantial rally higher soon lose momentum,” said analyst Kash Kamal in research note from Sucden Financial.
At 488.2 million barrels, the U.S. crude stockpiles is at levels unseen in at least 80 years.
Commerzbank said in a note that the sharp fall in U.S. drilling activity has yet to lead to any more pronounced drop in U.S. crude oil production. That needs to happen if oil prices are to make any kind of sustainable recovery, the bank said.
Excess supply and tepid demand growth has sheared oil prices by nearly half since summer last year.
High levels of toxic chemicals have been found in the mud unleashed by a collapsed dam in Brazil earlier this month, according to a United Nations report.
Prices remain pressured as the Organization of the Petroleum Exporting Countries stands fast in a battle for market share against non-OPEC members. That situation is expected to remain unchanged at next week’s OPEC meeting, as the organization continues to pump above 30 million barrels a day despite weak prices.
“The message is clear — OPEC will not cut alone. This will severely weigh on prices if there is no change to quotas next week as Iran looks to re-enter the market early next year,” said Stuart Ive, a client manager at OM Financial.
Nymex reformulated gasoline blendstock RBF6, -1.46% — the benchmark gasoline contract — was flat at 0.00% to $1.35 a gallon.