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Oil prices fall as global glut offsets prospect of lower US output
[SINGAPORE] Oil futures fell more than half a dollar on Tuesday given worries rising Iranian output would deepen a global oversupply, offsetting expectations of a drop in US production that had spurred sharp price gains in the previous session.
Key oil exporters Saudi Arabia and Russia have proposed to freeze output at January levels, which were near record highs, only if other producers also do the same. But Iran, now free of western sanctions that hurt its crude trade, is seen as unlikely to join, casting doubts over whether the freeze will happen.
"Iran's early post-sanctions marketing appears to be effective with the National Iranian Oil Company indicating that exports have risen by 500,000 barrels per day since sanctions were lifted in mid-January, although we expect that some of this volume was sold out of storage," investment bank Jefferies said.
US front-month West Texas Intermediate (WTI) crude futures were trading at US$32.72 per barrel at 0753 GMT, down 67 cents from Monday's settlement. International benchmark Brent was down 61 cents at US$34.08 a barrel.
"Without concrete actions (to cut production), we remain highly sceptical that prices could be moving higher," Singapore-based brokerage Phillip Futures said.
Globally, 1 million to 2 million barrels of crude are currently estimated to be produced daily in excess of demand.
Jefferies expects Opec output to hit 32.6 million barrels per day (bpd) in the second quarter, including higher Iranian output, with markets starting to rebalance by the third quarter as production outside Opec falls by 800,000 bpd this year.
Oil prices had jumped more than 5 per cent on Monday, buoyed by projections from the International Energy Agency (IEA) that US shale oil production could fall by 600,000 bpd this year and another 200,000 bpd in 2017.
But ANZ bank cautioned that crude supply growth from Iran "will more than compensate" for any decline in US output.
In the longer term, however, the IEA expects US production to recover on improving cost efficiency, lifting output to a record 14.2 million bpd by 2021, compared with a peak of over 9.5 million bpd in 2015.
The expected resurgence of US shale oil production will cap a recovery in the coming years in the price of oil, which is expected to reach US$80 per barrel by 2020, IEA Director Fatih Birol said at a news conference in Houston, Texas.