After four-straight weeks of selling, oil futures started on a down note Monday in Asia amid fresh supply worries.
On Friday, data indicated that U.S. oil operators added six more active oil rigs the past week, marking a 22nd-straight increase. Overabundance of oil has suppressed prices for nearly three years. Even though major producers in the Organization of the Petroleum Exporting Countries and Russia have sidelined a portion of their output since January, the market remains well-oversaturated and oil storage around the world remains in surplus.
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Bears today were also encouraged by the potential of a strong flow of oil from Nigeria and Libya hitting the market soon. Libya recently announced that it would unblock 160,000 barrels per day of production which has been halted for nearly two years due to dispute with a German energy company. That could propel Libya's daily production to 1 million barrels by the end of July, the national oil company said.
The OPEC-led deal is keeping 1.8 million barrels a day off the market, but fading faith in the agreement's effectiveness has sent prices down 17% this year, reversing the gains seen when the deal was initially reached in late 2016.
The bearish view is likely to remain the dominant sentiment in the short term. Recent options contracts show traders are hedging for the potential of oil falling below $41 a barrel in the months ahead, said Chris Kettenmann, chief energy strategist at New York-based Macro Risk Advisors. "It's a race to the bottom," he noted, adding that investors may be "betting on further downside."
On the New York Mercantile Exchange, light, sweet crude futures for delivery in July recently traded down 0.4% at $44.57 a barrel in the Globex electronic session. August Brent crude on London's ICE Futures exchange fell 0.4% to $47.17.
But at current levels, some say a floor may be on the horizon. Questions about U.S. shale's "ability to keep profitable are being asked," said Stuart Ive, a client manager at OM Financial. Meanwhile, firms like Wood Mackenzie have said a limited amount of drilling equipment amid rising demand will likely slow down America's oil-drilling expansion.
Helima Croft, the head of commodities strategy at RBC Capital Markets, questions the sustainability of recently production gains in Libya and Nigeria, saying those countries remain highly susceptible to insurgent uprisings as internal strife intensify. She also said that when weighing the potential of parties to the output-cut deal holding up their ends of the bargain, smaller producers--and likely cheaters--such as Venezuela don't have the resources to boost output near-term due to a lack of fresh capital.
"What you have now is a huge divergence between the fundamentals and sentiment," she said.
Nymex reformulated gasoline blendstock for July was recently up 0.1% at $1.4569 a gallon while diesel fell 0.3% to $1.4295 and ICE gasoil was eased 0.1% to $422.50 a metric ton.
- Gunjan Banerji contributed to this story
Write to Jenny W. Hsu at email@example.com
(END) Dow Jones Newswires
June 18, 2017 22:53 ET (02:53 GMT)