Oil prices fell about 1 percent on Tuesday, on signs of resurgent crude output in Libya and concerns that extended production cuts by leading exporting countries may not be enough to drain a global glut that has depressed prices for almost three years. Brent crude fell 76 cents, or 1.45 percent, to $51.53 a barrel by 1:00 p.m. EDT (1700 GMT), while US light crude was 46 cents, or 0.9 percent lower at $49.34.
Libya's oil production was at 784,000 barrels per day (bpd) because of a technical issue at the Sharara field, but was expected to start rising to 800,000 bpd on Tuesday, the chief of the state-run National Oil Corporation said. The Organization of the Petroleum Exporting Countries and other oil producers, including Russia, agreed last week to maintain output cuts of about 1.8 million barrels a day for nine months longer than originally planned.
Still, prices tumbled after the OPEC deal was announced. The cutbacks have yet to drain crude inventories significantly. "The market is now in the hands of how market participants interpret the weekly and monthly fundamental snapshots with all eyes focused on total global oil inventory levels," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.
Chirichella said the oil market is looking for "a sustained inventory destocking pattern that will send global supply and demand balances back to normal historical levels."
Part of the problem for OPEC is booming shale production in the United States. US drillers have added rigs for 19 straight weeks to reach 722, the highest since April 2015, according to services firm Baker Hughes. Some selling pressure on Tuesday came from banks, brokers said. Goldman Sachs analysts have cut forecasts for oil prices, saying falling US production costs should boost supply for years.
"While we are bullish on near-term prices as inventories normalize ... 2018-19 futures need to be in the $45-$50 range," Goldman said. Standard Chartered, however, said it expects global crude inventories will return to their five-year average by the end of the OPEC-led production cuts, with large drawdowns in the second half of 2017.
"We do not think that much, if any, of that tightening is currently priced in. We do expect prices eventually to gain some upwards momentum because of excess demand, but in the short term market sentiment remains bearish," the bank said. Gasoline demand during the US summer driving season may support crude prices, analysts said. For this past Memorial Day holiday weekend, the American Automobile Association had forecast the highest driving mileage since 2005.
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