Brent crude oil prices fell on Tuesday to its lowest level in over five months, erasing all of the gains since OPEC agreed to cut production at the end of November, after breaking through a key technical support level. The market was already trading lower prior to the technical selloff on reports of rising output in the United States, Canada and Libya and declining compliance by members of the Organization of the Petroleum Exporting Countries with the deal to cut output during the first half of this year.
Brent futures fell $1.06, or 2.1 percent, to settle at $50.46 a barrel, the lowest close since Nov. 29 - the day before OPEC agreed to cut supply. US West Texas Intermediate crude fell $1.18, or 2.4 percent, to $47.66 a barrel, its lowest close since March 21. The sharp technical decline came after US futures fell below last week's low of $48.20 a barrel, which was their lowest since late March.
In the five minutes after prices fell below that key technical level, over 50,000 US contracts traded, representing about 10 percent of total trade at that time on Tuesday. "The market was already down on concerns about rising Libyan and US production and a Reuters report showing lower compliance to the OPEC production cut agreement," said Phil Flynn, senior energy analyst at Price Futures Group in Chicago.
"It fell fast late in the day after taking out last week's low," Flynn said. OPEC's compliance with the output cuts fell to 90 percent in April from a revised 92 percent in March, according to a Reuters survey. Earlier, the survey showed compliance in March was 95 percent.
OPEC and other producers, including Russia, which agreed to cut output by 1.8 million barrels per day (bpd) for six months to reduce a global glut, plan to meet on May 25 and are widely expected to keep output limits for the rest of the year. Russian oil production fell slightly last month to 11 million bpd, almost hitting its output target under the deal with OPEC, energy ministry data showed.
OPEC oil output fell for a fourth straight month in April, a Reuters survey showed, dropping to 31.97 million bpd as Nigeria and Libya pumped less crude. Libya's National Oil Co, however, said on Monday that production had risen above 760,000 bpd to its highest since December 2014, and it plans to keep boosting production.
In addition, US crude output is at its highest since August 2015, while the Syncrude Canada oil sands project has started shipping crude from its Mildred Lake upgrader again after cutting production due to a fire in March. BP Plc Chief Financial Officer Brian Gilvary told Reuters that oil inventories would keep falling this year.
"If the OPEC cuts get rolled into the second half of the year, that will underpin oil prices," Gilvary said. "We are managing things around $50-$55 a barrel. That's probably the range we would expect for the rest of the year." US crude inventories were forecast to have fallen 2.3 million barrels last week, according to a Reuters poll, which would mark a fourth straight week of declines from a record high reached at the end of March. Stocks, however, are still seen about 10 percent above year-end levels. The American Petroleum Institute will release inventory data at 4:30 p.m. EDT (2030 GMT) on Tuesday.
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