Oil prices fell more than 4 per cent on Tuesday as planned production curbs by global producers, led by Saudi Arabia and Russia, failed to allay concerns about renewed oversupply stoked by swelling US shale output.
Fears about weaker oil demand amid a potential slowdown in the global economy have also added to worries about how effective the supply cuts will be.
The fall in oil prices comes amid a broader sell-off in the global equities market due to persistent worries centred on how the US-China trade spat could hit economic growth.
"Prices are continuing to nosedive," said Carsten Fritsch at Commerzbank.
“The effect of the announced production cuts after Opec’s meeting [earlier this month] has evaporated entirely.”
International benchmark Brent crude fell $1.70 (€1.50) a barrel to $57.91 in mid-morning trading in London, having fallen as low as $57.20, marking the third consecutive day of declines.
West Texas Intermediate, the US benchmark, fell $1.51 a barrel to $48.37, the lowest level since September 2017.
Global producers have agreed to cut production by 1.2 million barrels a day to halt a more than 30 per cent slide in oil prices, since hitting $86 a barrel in October. The move came in defiance of US president Donald Trump, who had called for the Organisation of Petroleum Exporting Countries (Opec) to keep output elevated and prices low.
But record output from Saudi Arabia above 10 million barrels per day since July coincided with news that the US would issue waivers to buyers of Iranian oil – at the same time as imposing sanctions against Tehran’s economy – allowing more oil than anticipated on to the market.
Output
Still, Iranian output and exports have fallen sharply this year and other producers such as Venezuela have seen a slide in their supplies because of turmoil in their countries. Production and exports from Libya’s largest oilfield, El Sharara, have also been halted due to security issues.
Still, this has not been enough to help firm up oil prices as hoped by global producers, which largely rely on revenues from crude exports to support their economies.
Data from the US energy department showed that the US has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with overall crude production climbing to a weekly record of 11.7 million barrels a day.
This has fuelled doubts about the effectiveness of the supply curbs and raised questions among traders and analysts about how long Opec and its allies will be willing to trim its supplies to benefit US rivals.
Market participants are also questioning how much Russia will pull back on its production, after also hitting a record level above 11.4 million barrels a day in December. – Copyright The Financial Times Limited 2018
