Oil prices gave up early gains and closed lower on Tuesday after the International Energy Agency rekindled fears that the market remains over supplied. "There's still a lot of crude oil available on the market, and I am with IEA that there is more than adequate supply for the balance of this year and the rest of 2016," said Andrew Lipow, president of Lipow Oil Associates.
Brent futures for November delivery settled at $49.24 per barrel, down 1.24 percent, or 62 cents. Brent futures were above $50 in earlier trading. US crude settled at $46.66 per barrel, down 0.93 percent, or 44 cents, wiping out early gains of over a dollar on technical trades. The IEA said the world oil market would remain over supplied for at least another year despite falls in output from non-Opec producers.
Traders noted that a weaker US dollar, which hit a three-week low on Tuesday, had added some support to higher crude prices early in the day. "There is some uncertainty in the trading markets about the direction of the US dollar, with some trading action in oil reflecting hopes that the US dollar declines further," said Richard Hastings, macro strategist at Seaport Global Securities.
Not everyone agrees with the IEA outlook. The focus of the market is slowly moving away from the existing glut to possible future tightening and a potential price spike, analysts at Energy Aspects said. "Rightly so, in our view, given accelerated declines in US output have kick-started the rebalancing process," Energy Aspects analysts Amrita Sen and Robert Campbell said in a note.
Oil's recent sharp price recovery is eerily like the bounce seen late last winter, said Edward Morse, global head of commodities research at Citi in New York. "Both followed a period of price stability following a sharp decline. Both appear to be spurred on by unverifiable assumptions surrounding single data points. Both are driven by sentiment and financial flows rather than clear market fundamentals," Morse added.
Investors awaited data on US oil inventories from the American Petroleum Institute (API) on Wednesday and the Energy Information Administration (EIA) on Thursday. Release of the data was delayed a day because of the US Columbus Day holiday. A Reuters survey estimated the US crude stockpile increased by 2.8 million barrels on average in the week ended October 9.
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