Dubai: After witnessing months of sideways movement in oil prices since November, stunned oil bulls might have to brace for more declines.
On Friday, Brent crude fell 1.6 per cent, to $51.37 (Dh188.53) a barrel, after falling more than 8 per cent last week. Brent prices have traded in the range of $53-58 a barrel since November.
West Texas Intermediate (WTI) fell to close below $50 per barrel mark on the day, closing down 1.6 per cent to $48.49 a barrel.
“Prices will focus on supply side now. Unfortunately, the bias is on the downside, may be towards $45-47 [per barrel],” said Naeem Aslam, chief market analyst with Think Markets.
And rising rig counts from the US, which headed for an eight straight weekly gain, pushed prices lower last week. The US drillers added eight rigs in the latest week, lifting the rig count to 617, its highest since September of 2015, Baker Hughes said.
“Over the short term, inventories in the US will remain the driving force for oil prices. Opec needs to extend the term of their agreement to reinforce their conviction to reduce oversupply,” said Vaqar Zuberi, Head of Research — Hedge Funds/Portfolio Manager — Multi Manager Funds at Mirabaud Asset Management.
In November last year, the Organisation of Petroleum Exporting Countries (Opec) and non-Opec countries agreed to cut oil production by 1.8 million barrels of oil per day, a move that resulted in over 50 per cent recovery in oil prices. But higher oil prices also aided shale to raise output.
Analysts expect speculators to cut their long positions, which had been at historically high levels.
“The open interest on WTI crude oil has risen during the past week, which could indicate a return of the short-seller. This will help level the field with the long to short ratio coming down from an unsustainable high level. The market, however, remains heavy with many long positions being underwater,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Objective
The major objective of the Opec deal is to try and get markets closer into balance rather than trying to get prices higher, and that hasn’t happened, said Edward Bell, a commodity analyst at Emirates NBD.
“Since the start of the year, the US added about 50 million barrels of oil to the inventory and production has continued to increase. You even had cases where the US exported as much as a million barrels per day of crude oil. None of these things point to me that the market is getting tighter. Those are the dynamics which Opec would be watching closely to decide what to do next when they meet in Vienna in May,” Bell said.
He added that Opec action in removing barrels of oil from the market has not been really successful in helping prices rally sustainably.
“If we had a decision not to renew the deal and there is an increase in production all of a sudden that would pose a downside risk, and oil prices may be stuck between $45 and $50 range,” Bell added.