Oil prices were steady to soft after touching three-month lows on Monday, testing a slide that began last week when the market became less optimistic that Opec's efforts to restrict output would reduce a global oil glut amid swelling US supplies. Prices have fallen by more than 8 percent since last Monday, its biggest week-on-week drop in four months, and analysts said the slide may not have much further to run.
After more than two months of reduced production from the Organization of the Petroleum Exporting Countries, the market is facing evidence that US production remains high and global markets remain oversupplied. "There is growing skepticism that the production cut has been enacted long enough to take care of the overhang," said Gene McGillian, director of market research at Tradition Energy. "The longs who piled in last year are turning on the market because there seems to be a realisation that a six-month agreement isn't long enough to rebalance the market.
Brent crude futures fell 6 cents to $51.31 a barrel by 1:30 pm Eastern (1730 GMT), having earlier hit a session low of $50.85, the lowest level since November 30. US West Texas Intermediate crude (WTI) fell 17 cents to $48.32 a barrel. Goldman Sachs said in a note it remained "very confident" about commodity prices and maintained its price forecast of $57.50 for WTI in the second quarter.
The slide could be the result of traders unwinding bullish long positions, and could slow as those positions are unwound, Tradition Energy's McGillian said. US drillers added oil rigs for an eighth consecutive week, Baker Hughes data showed on Friday, and they have announced ambitious production growth plans as they rebound from a two-year price war with Opec. Opec and other major oil producers, including Russia, reached an agreement at the end of November to rein in production by almost 1.8 million barrels per day (bpd) in the first half of 2017.
Russia's top oil major Rosneft warned that a recovery in US oil output may deter Opec and non-Opec producers from extending production cuts beyond June and might lead to a new price war. Although Opec states have been complying with supply curbs, led by Saudi Arabia, it has not been enough to overshadow a rise in US inventories to a new high. "It will be interesting to see how Opec rhetoric will evolve with this price correction. Is price the only consideration when it comes to the decision of extending cuts?" BNP Paribas global head of commodity strategy Harry Tchilinguirian told the Reuters Global Oil Forum. He added that Opec's task was more difficult as it aimed to cut inventory levels rather than simply target a specific price. Money managers cut their net long positions in US crude futures and options in the week to March 7.