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Oil slides as market discounts Opec output cut extension talk
[NEW YORK] Oil prices on Tuesday fell close to its lowest in a week as the market discounted the latest talk by Opec that it would extend output cuts beyond June.
That decline also came ahead of the release of weekly US crude inventory data later Tuesday and on Wednesday that is expected to show a crude stock build of 2.6 million barrels, according to a Reuters poll.
Brent futures for May delivery were down 53 cents, or 1 per cent, at US$51.09 a barrel by 11.36am EDT (1536 GMT).
U.S. West Texas Intermediate crude was down 68 cents, or 1.4 per cent, at US$47.54 per barrel on the last day the April contract is the front-month, its lowest level since March 14.
Sources within the Organization of the Petroleum Exporting Countries have indicated that its members increasingly favour extended production cuts but want the backing of non-Opec oil producers, such as Russia, which have yet to deliver fully on existing reductions.
"Opec is sticking with a plan that has not worked," said Phil Davis, managing partner at PSW Investments in Woodland Park, New Jersey, noting they are not offering more cuts and no new countries are joining in the cuts.
The group and some non-Opec producers agreed to curb production from Jan 1 by 1.8 million barrels per day (bpd) for six months to drain crude from record stockpiles. But inventories remain stubbornly large. "We think it is very unlikely that Russia will actively take part in any extension of the production cuts that goes beyond paying lip service to the agreement," Commerzbank said in a note, adding that it would be premature for investors to "pin their hopes" on an extension.
Commerzbank said that Opec cuts would need to last into the fourth quarter to achieve the group's goal of reducing record oil stockpiles in industrialised nations to their five-year average.
Investors were awaiting US inventories data expected to reveal rising stocks after a surprise drop in the week to March 10, with data from the American Petroleum Institute (API) at 4.30pm EDT on Tuesday and the US Energy Information Administration (EIA) at 10.30am EDT on Wednesday.
The WTI delivery hub in Cushing, Oklahoma, could be a particular focus in Tuesday's API data.
Stocks at Cushing rose in the week to March 10, helping to widen the premium for Brent over WTI WTCLc1-LCOc1. That gap now stands at around US$2.82 for May delivery, its highest since the end of January. "Another increase would be generally bearish for WTI-related spreads," said Tamas Varga, analyst at London broker PVM Oil Associates.