Oil prices plunge 3% on oversupplied market

Oil prices fell three percent on Friday after data showed U.S. production rose last week just as OPEC exports hit a 2017 high, casting doubt over efforts by producers to curb oversupply, Reuters reports.

Global benchmark Brent futures LCOc1 were down $1.43, or  three percent, at $46.68 a barrel at 1116 GMT, after falling to as low as $46.63, its weakest level in more than a week.

U.S. West Texas Intermediate (WTI) crude futures CLc1 traded at $44.14 a barrel, down $1.38 or 3 percent. Their session low of $44.05 was also the lowest in over a week.

According to the Reuters’ report, Ole Hansen, head of commodity strategy at Saxo Bank said that “We’re seeing some head scratching today. Following a sharp rally, which was mostly driven by short-covering, the failure of Brent to break back above $50 earlier in the week has once again given sellers appetite for sending it lower.”

Weekly U.S. government data showed on Thursday that U.S. oil production C-OUT-T-EIA rose one percent to 9.34 million barrels per day (bpd), correcting a drop in the previous week that was down to one-off maintenance and hurricane shutdowns.

The rise in U.S. output coincides with exports from the Organization of the Petroleum Exporting Countries climbing for a second consecutive month in June to the highest this year.

Russia, which is cooperating with OPEC in a deal to stem oil production, said on Friday it was ready to consider revising the parameters of the deal if need be.

President Putin, attending the G20 summit in Hamburg, said he wanted to continue cooperating with other countries to reduce price volatility.

Also see: Saudi Arabia silent over ‘whatever it takes’ at OPEC’s critical moment

The market largely ignored news from the U.S. Energy Information Administration (EIA) that U.S. crude inventories USOILC=ECI fell by 6.3 million barrels in the week to June 30 to 502.9 million barrels, the lowest since January.

The push-and-pull between bearish and bullish factors will keep volatility high, said Hans van Cleef, senior energy economist at ABN Amro.

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“In the near term, this leaves us with a volatile trading range of roughly $45-50 a barrel.”

If OPEC was unable to balance the market, change would likely be forced on it by oil prices, said Morgan Stanley.

The U.S. bank said a WTI price of $46 to $50 per barrel would likely prevent U.S. production rising in the mid- to long-term, but “prices will need to be in the low $40s” for U.S. output to fall significantly.

Morgan Stanley said it expected WTI to remain below $50 until mid-2018.

Report courtesy Reuters