Oil prices extend slide amid oversupply fears, unlikelihood of deeper Opec cuts

A motorist holds a fuel pump at a petrol station.
A motorist holds a fuel pump at a petrol station.PHOTO: REUTERS

HONG KONG (REUTERS, BLOOMBERG) - Oil extended its collapse to the lowest since November on Friday (May 5) as the continuing expansion of US crude production erased almost all gains from the Opec deal to cut supply agreed late last year.

Crude prices fell by as much as a further 3 per cent on Friday, after prices had crashed to five-month lows in the previous session. US West Texas Intermediate (WTI) futures were trading at US$44.14 per barrel at 0335 GMT, down US$1.39 or 3 per cent, after a more than 4 per cent drop the previous session. WTI futures have fallen below prices when the Opec cuts were agreed in late November and are at their lowest since Nov 14.

Brent crude futures, the international benchmark for oil prices, were at US$47.05 per barrel at 0335 GMT, down US$1.33 or 2.8 per cent from their last close. Brent tumbled back below US$50 in the previous session and is its lowest since Jan 14.

Brent and WTI are on track for their largest two-day percentage loss since February 2016.

"So far Opec's strategy to draw down inventories has not worked ... It seems obvious to us that Opec will need to keep the cuts in place for longer than the next 6 months if their strategy is to have any chance of success," Neil Beveridge, senior oil and gas analyst at AB Bernstein in Hong Kong said in a note to clients on Friday.

Other analysts agreed the steep price falls would likely force Opec members to extend production cuts later this month, but they said the prospect of deeper cuts appeared slim.

"This collapse seems to be due to stops being hit. However I feel it is a bit strange so close to Opec ... meeting where a roll over seems likely," said Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore.

Doubts that the Opec-led cuts, even when fully implemented, are deep enough to draw down bloated storage levels around the world are also weighing on prices. There was also a sign of slowing energy demand in China, the world's second largest oil consumer, when a survey showed growth in that country's services sector in April was at its slowest in almost a year.

Both Brent and WTI futures are down around 17 per cent for the year so far despite the Opec effort to support prices.

In a sign of ongoing oversupply, the amount of oil stored on tankers in Malaysia's waters has surged again recently, after drawing down slightly in March and April.

Opec is scheduled to meet on May 25 to decide whether to extend the cuts.

"Any likelihood of an increase in the level of cuts remains slim with Opec officials playing down this possibility," said James Woods, global investment analyst at Rivkin Securities.

Traders also pointed to soaring US oil output, up more than 10 per cent since mid-2016 to 9.3 million bpd, levels not far off top producers Russia and Saudi Arabia.