Oil settles a tad lower after sliding to 3-month lows

[NEW YORK] Oil prices settled a few cents lower on Monday, retracing much of an early retreat to three-month lows in a steep slide that began last week as investors wondered whether swelling US crude supplies would hinder Opec's efforts to restrict output and reduce a global glut.

Analysts said the slump may not have much further to go now that prices have fallen more than 8 per cent since last Monday, the biggest week-on-week drop in four months.

Prices had risen on more than two months of reduced production from the Organization of the Petroleum Exporting Countries. Now, the market faces evidence that US production remains high and global markets remain oversupplied.

"There is growing skepticism that the production cut has been enacted long enough to take care of the overhang," said Gene McGillian, director of market research at Tradition Energy.

"The longs who piled in last year are turning on the market because there seems to be a realisation that a six-month agreement isn't long enough to rebalance the market."

The steep price slide could slow as traders finish unwinding bullish long positions, McGillian said.

Brent crude futures settled down 2 US cents at US$51.35 a barrel. The session low was US$50.85, the lowest since Nov 30.

US West Texas Intermediate crude (WTI) settled down 9 US cents at US$48.40 a barrel.

Goldman Sachs said in a note it remained "very confident" about commodity prices and maintained its price forecast of US$57.50 for WTI in the second quarter.

US drillers added oil rigs for an eighth consecutive week, Baker Hughes data showed on Friday, and they have announced ambitious production growth plans.

Opec and other major oil producers, including Russia, reached an agreement at the end of November to rein in production by almost 1.8 million barrels per day (bpd) in the first half of 2017.

Russia's top oil major Rosneft warned that a recovery in US oil output may deter Opec and non-Opec producers from extending production cuts beyond June and might lead to a new price war.

Although Opec states have been complying with supply curbs, led by Saudi Arabia, US inventories have swelled to a new high.

"It will be interesting to see how Opec rhetoric will evolve with this price correction. Is price the only consideration when it comes to the decision of extending cuts?" BNP Paribas global head of commodity strategy Harry Tchilinguirian told the Reuters Global Oil Forum.

He added that Opec's task was more difficult as it aimed to cut inventory levels rather than simply target a specific price.

Money managers cut their net long positions in US crude futures and options in the week to March 7.

REUTERS