Oil price tumbles on fears of oversupply

Crashing oil prices in late 2015 and early 2016 dealt a blow to the US shale industry.

Crude oil brent prices – the global benchmark – were at $49.45 a barrel on Thursday morning. Oil stocks felt the pinch, with the S&P Oil & Gas Exploration and Production Index slumping as much as 4.9 percent Thursday to the lowest since August.

Nigeria, which now pumps about two million barrels of oil per day, is seeking to be exempt from the new OPEC deal, which would be considered at the next ordinary meeting in Vienna.

Some stock markets across Asia fell in tandem with oil prices yesterday as analysts forecast further weakness amid signs that global USA and China demand may not be strong enough to mop up the excess production.

“Despite a possible extension of the OPEC agreement… prices are likely to continue their slide in Q2 and I see higher chances of them dropping below $45 than rising above $55”, said Eugen Weinberg, head of commodities research at Commerzbank.

Brent crude settled at US$48.38, or 4.75 per cent lower, after tumbling as much as 5.17 per cent during the session. But crude inventories fell by 930,000 bpd in the week to April 28, against analysts’ expectations for a decrease of 2.3 million barrels. West Texas Intermediate, the USA benchmark, fell to $46.47, its lowest level since at least November.

Crude has fallen below US$47 a barrel for the first time since the Organisation of Petroleum Exporting Countries (Opec) agreed to cut output in November.

The US data and some investors “losing faith with Opec” are not helping the oil price, said Abhishek Deshpande, an oil analyst at Natixis.

Gains in oil futures were capped as concerns over rising US oil output persisted, after oilfield services firm Baker Hughes reported its weekly USA rig count rose by 6 to 703.

USA shale driller Chesapeake Energy Corp. posted its first quarterly profit since 2014 and braced shareholders for a production surge in the second half of the year as new natural gas and oil wells come online. Brent, the London-traded contract against which most of the world’s crude is priced, closed below $50 for the first time since November 29. That matches OPEC’s March production.

OPEC in its upcoming meeting on May 25 in Vienna will take a call on whether an extension cut is needed, however, below are the reasons which make a production cut extension imminent.

CIMB economist Song Seng Wun said weak oil prices could hamper a recovery in Singapore’s offshore marine sector.

Russian Federation thinks it will be necessary to extend its agreement to cut oil output in conjunction with OPEC beyond June, Energy Minister Alexander Novak said in an emailed statement Thursday.

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