Oil prices fall as output remains high, producers slash costs

[SINGAPORE] Oil prices dipped in early trading on Friday following slight gains in the previous sessions, and analysts said the outlook remained weak with production high and producers reducing operating costs to adjust to lower export revenues.

Global oil prices firmed slightly on Thursday but not before US crude hit a near six-year low and benchmark Brent pared gains on data showing fresh additions to record-high US oil inventories.

Benchmark Brent crude oil futures opened Friday's trading with losses, opening at US$49.15 (S$66.40) a barrel at 0100 GMT but falling to US$48.95 by 0200 GMT. US WTI futures were trading at US$44.56 a barrel, almost unchanged.

Analysts said that the market outlook remained weak as producers were keeping output high and were adjusting to a lower price environment. "It looks increasingly difficult to see any voluntary supply cutbacks in commodity markets," ANZ bank said on Friday in a research report.

"Falls in currencies and energy costs will allow many energy and bulk commodity producers to ride this out this weakness," it added.

Despite the weak outlook, oil prices have so far received support around current levels since the beginning of the year.

With gains above US$540 a barrel for Brent also unlikely in current conditions, that means that price swings have been falling since the beginning of the year.

The Volatility Index from front-month Brent crude contracts has fallen from around 65 points at the beginning of the year to just over 53 points currently, its lowest since 2009.

REUTERS