Oil futures slid anew in Asian trading Wednesday, underscoring investors' belief that the extended production caps by major producers and the summer driving season in the U.S. won't do much to crimp still-heavy global supplies.
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After Thursday's plunge in the wake of what was decided by the Organization of the Petroleum Exporting Countries and other non-cartel producers like Russia, the U.S. oil benchmark has pulled back when trying to get back above $50 a barrel.
Analysts say that barring any unpredictable geopolitical events, oil within a few dollars either side of $50 appears to be the "new normal" as there remains "too much [oil] and too little demand," said Phinn Ziebell, an economist at National Australia Bank. "We could see some short-term spikes in prices, but seasonality won't be a game changer," he added.
OCBC economist Barnabas Gan added that sub-$50 West Texas Intermediate suggests "the market remains unconvinced that OPEC's production cuts are sufficient to balance the supply glut" that has cast a pall over the market for more than two years.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in July recently traded down 0.7% at $49.33 a barrel in the Globex electronic session. July Brent on London's ICE Futures exchange was off 0.6% at $51.54.
The initial OPEC-led production cuts has so far done little to cut global inventories. And the initial price jump after the deal was announced six months ago helped encourage new U.S. drilling activity and send oil production there rebounding after 2016's decline.
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The latest data from the Energy Information Administration had U.S. production averaging 9.3 million barrels a day, 6.3% higher than year-earlier levels. The increase is hardly a surprise given oil drilling has risen for 19 straight weeks. Readings for last week will come Thursday, and S&P Global Platts is predicting an eighth-straight week of declines in U.S. oil inventories.
Still, market watchers now say prices need to stay weaker for longer, more specifically below $50, in order to effectively impede U.S. shale companies from investing further in their oil holdings.
Nymex gasoline futures for July were recently down 0.3% at $1.619 a gallon while diesel eased 0.2% to $1.5508 and June gasoil was little changed at $457 a metric ton.
Write to Jenny Hsu at email@example.com
(END) Dow Jones Newswires
May 30, 2017 23:16 ET (03:16 GMT)