Oil prices stumbled for third straight session on Tuesday, shedding more than 3 percent, as concerns about oversupply rose after reports of inventory build and record estimates of shale output in the US.
Brent crude oil futures for February delivery dropped 2.9 percent to a low of $57.86 per barrel. The international benchmark has lost more than 4 percent in the previous three sessions.
US West Texas Intermediate (WTI) crude futures declined 2.7 percent to a low of $48.52 per barrel, its weakest level since September 2017, before recovering to trade down 3 percent to $48.67 a barrel.
Both US crude and Brent have fallen over 30 percent since early October due to mounting global supplies, with WTI now at levels not seen since October 2017.
Concerns over future oil demand amid slowing global economic expansion and doubts over the success of planned output curbs led by the Organization of the Petroleum Exporting Countries (OPEC) also added more pressure on prices, according to traders.
Analyst Benjamin Lu Jiaxuan stated that rising US shale production levels along with a deceleration in global economic growth has threatened to offset OPEC+ efforts as markets weigh the potential of looser fundamentals.
Market confidence remains extremely delicate amid looming economic uncertainties as investors contemplate on weaker fuel demand beyond 2018, he added.
Crude output from seven main US shale basins is expected to increase more than 8 million barrels per day (bpd) by the end of 2018 for the first time, according to the US Energy Information Administration (EIA).
Oil Supply Concerns
Data from a US market intelligence company showed inventories at the US storage hub of Cushing, the delivery point for the WTI futures contract, added over 1 million barrels from December 11 to 14.
Analysts stated that as oil prices tumble, losing shale producers will ultimately stop operating and reduce supply, although that will take some time.
The US has beaten Russia and Saudi Arabia as the world’s largest producer, with overall production reaching a record of 11.7 million bpd.
Output cut agreed by the OPEC and its allies headed by Russia, might not be able to provide the desired results, although, as US production continues to build and Iran goes on pumping out more oil, according to analysts.
Some were also uncertain about Russia’s commitment to the curbs agreed with the producer group. So far this month, crude output from Russia stood at a record high of 11.42 million bpd.
Portfolio manager Hue Frame said if Russia can be a bystander, it benefits them greatly, but they will see a reduction in profitability, gain market share, which is generally more important in the oil market.
The upcoming two-day meeting of the Federal Reserve is widely expected to end with another rate hike on Wednesday, affecting the US dollar, which in turn could impact oil prices, according analysts.
The central bank in September has forecast three rate increases for 2019, although some are expecting that Fed officials will only signal two rate hikes for next year as growth worldwide continues to stagger.
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