Oil prices fall further amid oversupply fears

Jay Anderson
May 19, 2017

With the crude prices hitting a six month low at $45.52 last week and dropping below the prices seen before OPEC announced its decision to cut production in late November, the cartels failure to strengthen crude prices seems evident and the failure will force the cartels hand to extend its production cut for the next half of the year 2017.

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

These large drops put crude back to levels last seen before the Organization of the Petroleum Exporting Countries (OPEC) and other producers including Russian Federation said they would cut output by nearly 1.8 million barrels per day (bpd) during the first half of the year in a bid to tighten the market and prop up prices.

Brent crude futures LCOc1, the global benchmark for oil prices, were at $48.41 per barrel at 0047 GMT, up 3 cents from their last close.

"If the oil price stays below 50 USA dollars (£38.65) for an extended time-period then the oil companies may see a hit on profits".

The precise trigger for the two-day sell off, which has loped more than 7% from global crude prices, is hard to pinpoint, but the downward slope has been evident since last month's OPEC report in which the cartel raised its supply forecast for non-members, thanks in part to a huge upswing in shale oil production.

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Hong Kong's benchmark Hang Seng index lost 1.2 percent to 24,396.85 while the Shanghai Composite index in mainland China shed 0.7 percent to 3,104.02.

Further dampening sentiment are weaker Chinese purchasing managers' index numbers, and data showing that USA economic growth slowed to an annual rate of just 0.7 per cent in the first quarter - the slowest in three years. About the same pace of growth of demand is expected in 2018. The price recovered somewhat over the course of 2016 to just under $57 by the end of the year.

Money managers have already cut their net long positions, a bet on a further price rally, by a third in the last two months. At the next meeting on May 25, the cartel will decide whether to expand their agreement to lower crude production.

Russia, contributing the largest production cut outside OPEC, said as of May 1, it had cut output by more than 300,000 bpd since hitting peak production in October. He added that continued growth in China, where there are no signs of a hard landing yet, as well as Japan, the euro zone and the U.S., should keep oil demand strong.

ENERGY SHARES: Oil company stocks led declines.

CIMB economist Song Seng Wun said weak oil prices could hamper a recovery in Singapore's offshore marine sector. The Nasdaq composite added 2.79 points to 6,075.34.

Other reports by BadHub

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