Dubai: The downside risk in oil prices is greater than ever.

Oil prices fell to their lowest level in a month after hitting a 18-month high as compliance issues on the November accord weighed on sentiment in the backdrop of elevated long positions in the commodity.

Brent crude traded 0.88 per cent higher at $54 (Dh198) per barrel, down nearly 6 per cent from a high of over $57 per barrel hit on Friday.

“We maintain our view that the downside risk is the greatest due to the threat of long liquidation,” Ole Hansen, head of commodity strategy said.

But the fall won’t be too much. “ ... considering the ongoing efforts to rebalance the market we do not see the risk of a major correction — more than 20 per cent — as has been seen several times when speculators got too carried away in either direction,” Hansen added.

The combined net-long stood at 790 million barrels with the gross-long staying above 900 million barrels, indicating elevated bullish positions in crude oil.

Another factor that would weigh on oil prices would be non-compliance by some members like Iraq on production accord signed in late November.

“GCC cutting production was last week’s news and now we need confirmation that others, especially Iraq, will follow suit. Record shipments from Iraq’s southern terminals combined with a reluctant KRG in the north will make it difficult for Iraq to achieve its promised cuts,” said Hansen.

Iraq, the third biggest Opec oil producer, exported 3.64 million barrels a day of crude oil in February — more than it shipped in December — from its ports in Basra province.

Traders would closely watch the monthly Opec report, likely to be issued on Friday, for clarity on oil production from member countries.

This along with the other energy reports, along with primary, secondary data issued by various agencies would be watched.

Shale oil

Despite the fall, oil prices would be attractive enough for US shale oil to pump more, thereby keeping the prices under check.

“We expect supply from US producers to kick in during the second half due to the relatively short lead times of US shale supply,” Giovanni Staunovo, commodity analyst at UBS Wealth Management told Gulf News.

And even the rigs have been increasing by the day on high oil prices.

For a tenth week in a row, drillers added four more oil rigs in the week to June 6 to be at 529, the most since December 2015.

Staunovo expects oil prices to trade between $55-60 in the second half to December.