Oil prices fell about 1 percent on Tuesday, on signs of resurgent crude output in Libya and concerns that extended production cuts by leading exporting countries may not be enough to drain a global glut that has depressed prices for almost three years.
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"This is a rangebound market until you get something breaking out that tells you a longer term story," said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management.
"For now the story is just one of an oversupplied market with the lower end of prices being defended by OPEC."
Libya's oil production was at 784,000 barrels per day (bpd) because of a technical issue at the Sharara field, but was expected to start rising to 800,000 bpd on Tuesday, the chief of the state-run National OilCorporation said.
The Organization of the Petroleum Exporting Countries and other oilproducers, including Russia, agreed last week to maintain output cuts of about 1.8 million barrels a day for nine months longer than originally planned.
Still, prices tumbled after the OPEC deal was announced. The cutbacks have yet to drain crude inventories significantly.
"The key question will be whether the next round of OPEC cuts results in actual curtailment of exports since that will obviously be much more impactful for global prices," said Tamar Essner, senior director of energy and utilities at Nasdaq Corporate Solutions.
"Much of the low hanging fruit of compliance has been done and so by reducing production, especially during the high demand summer months, we would need to see a more meaningful reduction in exports in the second half the year in order to be more constructive on prices."
Part of the problem for OPEC is booming shale production in the United States. U.S. drillers have added rigs for 19 straight weeks to reach 722, the highest since April 2015, according to services firm Baker Hughes.
Some selling pressure on Tuesday came from banks, brokers said. Goldman Sachs analysts have cut forecasts for oil prices, saying falling U.S. production costs should boost supply for years.
"While we are bullish on near-term prices as inventories normalize ... 2018-19 futures need to be in the $45-$50 range," Goldman said.
Standard Chartered, however, said it expects global crude inventories will return to their five-year average by the end of the OPEC-led production cuts, with large drawdowns in the second half of 2017.
"We do not think that much, if any, of that tightening is currently priced in. We do expect prices eventually to gain some upwards momentum because of excess demand, but in the short term market sentiment remains bearish," the bank said.
Gasoline demand during the U.S. summer driving season may support crude prices, analysts said. For this past Memorial Day holiday weekend, the American Automobile Association had forecast the highest driving mileage since 2005.
U.S. crude oil inventories likely fell for the eighth straight week and refined product stockpiles were also forecast to have dropped last week, a preliminary Reuters poll showed. [EIA/S]
Due to Monday's holiday, weekly inventory reports from American Petroleum Institute and the Energy Information Administration have been delayed to 4:30 p.m. EDT (2030 GMT) on Wednesday and 11:00 a.m. on Thursday, respectively.
(Additional reporting by Christopher Johnson in London, Henning Gloystein in Singapore; Editing by Marguerita Choy and Edmund Blair)