Oil prices fall as global glut offsets prospect of lower US output
SINGAPORE: Oil futures fell more than 1 percent on Tuesday amid worries rising Iranian output would deepen a global crude oversupply, offsetting expectations of a drop in US production that had spurred sharp price gains in the prior session.
Key oil exporters, led by Saudi Arabia and Russia, have proposed to freeze output at January levels, but only if others joined in. While Iran, now free of international sanctions that hurt its oil trade, has welcomed the move, the country has stopped short of pledging to act itself. It is thus unclear whether the freeze will actually happen.
"Without concrete actions (to cut production), we remain highly sceptical that prices could be moving higher," Singapore-based brokerage Phillip Futures said, adding that prices would instead face strong downward pressure.
US front-month West Texas Intermediate (WTI) crude futures were trading at $32.89 per barrel at 0356 GMT, down 50 cents from Monday's settlement. International benchmark Brent was down 50 cents at $34.19 a barrel.
The drop in benchmark prices is partly due to the prospect of rising Iranian production prolonging the world oversupply, analysts said. Globally, 1-2 million of barrels of crude are currently estimated to be produced daily in excess of demand.
"Crude supply growth from Iran will more than compensate for any decline in US output," ANZ bank said.
Oil prices jumped more than 5 percent on Monday, buoyed by projections from the International Energy Agency (IEA), the world's oil consumer body, that US shale oil production could fall by 600,000 barrels per day (bpd) this year and another 200,000 bpd in 2017.
The IEA, however, said in the longer term, US production would also 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 $80 per barrel by 2020, IEA Director Fatih Birol said at a news conference in Houston, Texas.