Oil price tumbles on fears of oversupply
- Author: Darren Santiago May 06, 2017,
May 06, 2017, 2:16
The market is expecting OPEC and other producers to extend production cuts well into the second half of the year.
The cuts haven't made much difference in the global glut of crude, and production gains touted by US producers in recent weeks - with plans for more growth - dropped the floor from under prices that had been sticking near $50 since the deal was announced November 30.
There is an emerging consensus among Opec and non-Opec countries who took part in a global pact to cut crude output on the need to extend the agreement beyond June to help clear a supply glut, Saudi Arabia's Opec governor said on Friday.
"Any likelihood of an increase in the level of cuts remains slim with OPEC officials playing down this possibility", said James Woods, global investment analyst at Rivkin Securities. USA crude fell as low as $45.39, Brent touched $48.32.
On the New York Mercantile Exchange, crude futures for June delivery lost 4.81% to settle at $45.52 a barrel, while on London's Intercontinental Exchange, Brent lost 4.75% to settle at 48.38 a barrel.
Front-month WTI volume rose to more than 898,000 contracts, the highest in almost two months.
Commodity Trading Advisors were among those liquidating their oil contracts, traders said.
Tumbling prices would likely force OPEC members to extend production cuts later this month, but the prospect for deeper cuts appeared slim, analysts said. That will only change when we get to the point where we see what OPEC numbers are out on 30th of May and also when we hear the outcome of the OPEC meeting after the 25th.
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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 nearly a year. Rogers said charts showed the next potential stalling points were $44.20 for WTI and $47.20 for Brent.
One note of caution: There is a very strong support around $42 per barrel, so we urge our readers to closely monitor price activity around that level.
What range are you working with for crude after this sudden plunge to a five-month low?
Crude oil prices plunged to their lowest level in five months Thursday, erasing all of their gains since OPEC and Russia's decision to cut their output levels on November 30.
Even so, Mr 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".
Oil prices have sunk to their lowest level since November 2016 after Russian Federation said it hasn't yet made a decision about extending cuts.
But many in the market believe steeper cuts are needed to reduce the glut significantly.
"At some point, the market should recognize Opec isn't the most important player in the market any more", said Commerzbank's Eugen Weinberg, "That is non-Opec, and, above all, United States shale".