Oil prices peel back some of Monday’s rally as investors cash in on gains
London (Feb 23) Crude oil lost ground on Tuesday, as traders took profit after the recent surge in prices, underscoring a lack of confidence in the market’s ability to rebalance itself in the short term.
Oil prices rose sharply overnight after the International Energy Agency said U.S. shale-oil production would likely fall by 600,000 barrels a day in 2016 and another 200,000 barrels a day in 2017.
The agency also said 4.1 million barrels a day will be added to global supply between 2015 and 2021, a decline from total growth of 11 million barrels a day from 2009 to 2015.
However, the agency offered a caveat. While prices should rally once the market begins rebalancing, the availability of resources that can be easily accessed will “limit the scope of rallies,” at least in the near term.
U.S. crude inventories are currently at 504 million barrels. Analysts say the resilience of U.S. shale producers to withstand low prices has exceeded expectations from the Organization of the Petroleum Exporting Countries.
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Light, sweet crude futures for delivery in May CLJ6, -0.51% fell 48 cents, or 1.5%, to $32.90 a barrel on the New York Mercantile Exchange. April Brent crude LCOJ6, +0.29% on London’s ICE Futures exchange fell 33 cents, or 1%, to $34.32 a barrel.
OPEC has in the past adjusted its supply output to avert a price collapse. However, over the past two years, OPEC bigwig Saudi Arabia has instead kept output at a high rate, with the idea that persistently low prices will squeeze out non-OPEC players, such as the U.S. and Russia, who would be forced to give up market share.
As a result, prices have been low. Oil futures prices are down nearly 80% from their mid-2008 peak and many analysts are predicting oil prices will tumble to a level of $20 a barrel before producers are willing to turn off their taps.
“The market is way too oversupplied right now and it is hard to see any short-term improvement,” said Li Li, a research and strategy director at ICIS Energy.
Concerns over a stubborn glut outweighed upbeat comments by OPEC Secretary General Abdalla Salem el-Badri, who said a proposed coordinated production freeze, if agreed upon by all OPEC members, would mark the a first step to support prices, and “if this is successful, maybe we can take other steps in the future.” However, a price increase would embolden U.S. producers to ramp up output, he added.
“As it stands, although most [OPEC members] have already agreed on the production freeze, for them to execute it would be a different story. Therefore, suggesting that further collaboration are still rather far-fetched,” said Daniel Ang, a Phillip Futures energy analyst.
Nymex reformulated gasoline blendstock for March RBH6, +0.60% — the benchmark gasoline contract — fell 1 cent, or 1.3%, to 98.80 cents a gallon.
ICE gasoil for March changed hands at $312.75 a metric ton, down $4.50 from Monday’s settlement.
SOURCE: MarketWatch
