Outlook For Oil Looks Bleak, Prices Hit 7-Month Low

Outlook For Oil Looks Bleak, Prices Hit 7-Month Low

Oil fell about 2% on Tuesday, with Brent settling at seven-month lows and U.S. crude at its cheapest level since September, after increased supply from several key producers overshadowed high compliance by Opec and non-Opec oil producers with a deal to cut global output.

Brent crude futures are down 0.26 percent and amounts to $45.90 per barrel, meanwhile U.S. West Texas Intermediate (WTI) crude futures are down 0.14 percent and stand at level $43.45 per barrel.

Global benchmark Brent was down $0.11, or 0.2 percent, at $45.91 barrel at 03:45 GMT after falling almost 2 percent in the previous session to its lowest settlement since November.

The oil production has kept a high level of oil stockpiles available globally, despite the OPEC taking steps to reduce their oil production in order to secure the market.

The premium of the Brent front-month over the same month for WTI WTCLc1-LCOc1 is now at its highest since late May, when producers led by the OPEC extended by nine months its pledge to cut output by 1.8 million barrels per day.

Libya's oil production has risen by over 50,000 bpd to 885,000 bpd after the state oil firm settled a dispute with Germany's Wintershall, a Libyan oil source told Reuters on Monday. Indifferent to OPEC's efforts to curb the glut to push up prices, Libya is eager to raise its production as quickly as possible, eyeing 1 million bpd by the end of July.

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"His aggressive stance against Iran makes it unlikely to see greater Saudi participation in supply cuts without Iran cutting production as well", Petromatrix analysts wrote in its daily market report.

Domestic crude production recorded an increase of 0.2% on the week at 9.35 million bpd and output rose 7.8% over the year. Data from the American Petroleum Institute on June 20 showed USA crude stockpiles last week had dropped more than forecast.

But a Bloomberg survey found that analysts expect US stockpiles to fall by 1.2 million barrels in the prior week. The IEA said in its report on June 14 that supply from non-OPEC producers next year may offset cuts from OPEC and its allies.

According to the IEA, non-OPEC supply will increase by nearly 1.5 million barrels a day in 2018, with about half of the expansion coming from U.S. crude production.

Conditions are in place for an eventual short-covering rally but the rebound may not come until there are clear signs global stocks are falling and US shale drilling is levelling off.

If Brent continues to trade at below $50 a barrel over the summer, Opec and its partners will be faced with some hard questions about their market intervention.

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