Oil Prices Fall on Fears of Rising Production -- Update

Oil prices inched lower Tuesday, nearing one-month lows, amid a wider financial market decline and investor concerns about increasing oil production in the U.S.

Light, sweet crude for June delivery recently lost 21 cents, or 0.4%, to $47.19 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, lost 27 cents, or 0.6%, to $49.20 a barrel on ICE Futures Europe.

Major equity markets were in the doldrums, weighing on commodities prices. Some investors have begun to question whether equities are overvalued, particularly given concerns over President Donald Trump's ability to follow through on promises of tax cuts and new infrastructure spending. That can lead investors, broadly, out of riskier assets such as commodities, especially as other markets flash warning signs over growth prospects.

"You have general negative market sentiment this morning," said Bjarne Schieldrop, chief commodities analyst at SEB Markets, on Tuesday.

Analysts point to a tightening of the oil supply since OPEC and other producers agreed in May to extend a deal to cut collective production by 1.8 million barrels a day. The original deal was aimed at propping up sagging oil prices and reducing the global glut of crude to below five-year averages.

But the market has instead made several treks lower since early March in part because U.S. inventories held near historic highs much longer than many expected. This is the third session in a row that U.S. crude has traded at lows dating back to May 10.

Investors remain concerned about increasing U.S. production, which hit a nine-month high of 9.3 million barrels a day in the most recent four-week period averaged by the U.S. Energy Information Administration. That damps some enthusiasm about U.S. crude inventories decreasing for eight straight weeks -- data from the EIA last week showed a 6.4 million-barrel drop in stocks.

"That's what's going to keep us pinned in a range," said John Saucer, vice president of research and analysis at Mobius Risk Group in Houston. "We're stuck for a little bit until it becomes clear."

A reduction in supply is taking place at the heavy sour crude end of the oil range instead of the light sweet crude end, which is being pumped in abundance by countries including Libya, Nigeria -- and especially the U.S. Both Libya and Nigeria have exemptions from the OPEC cuts and there have also been concerns about production rising there.

"The market's concern with increased shale production is that as it outpaces domestic U.S. demand, any excess crude could build inventory and undermine the OPEC market-balancing narrative," said Sandy Fielden the director for oil and products research at Morningstar.

With that in mind, investors will watch for an estimate Tuesday from the American Petroleum Institute, which forecasts production and stock levels, as well as U.S. weekly oil data, due Wednesday.

Gasoline futures recently lost 0.7% to $1.5277 a gallon, and diesel futures shed 0.9% to $1.4467 a gallon.

--Jenny W. Hsu, Christopher Whittall and Kenan Machado contributed to this article.

Write to Neanda Salvaterra at neanda.salvaterra@wsj.com and Timothy Puko at tim.puko@wsj.com

(END) Dow Jones Newswires

June 06, 2017 10:22 ET (14:22 GMT)