Dubai: Brent crude prices have tumbled nearly 6 per cent after hitting an 18-month high as smaller oil producers boost production and sales.
In late November, Organisation of the Petroleum Exporting Countries (Opec) producers decided to reduce output by 1.2 million barrels a day to 32.5 million for six months starting in January, with exemptions given to Iran, Nigeria and Libya.
In December, non-Opec producers including Russia and Kazakhstan pledged to trim supply by 558,000 barrels a day.
“We remain sceptical that the deal will swiftly erase surplus supplies and see no lasting support to prices,” said Norbert Ruecker, Head Macro & Commodity Research, Julius Baer.
Brent crude was trading at $53.87 (Dh197) per barrel, down 5.89 per cent from the 18-month high of over $57 hit on Friday.
“A two-day sell-off has taken oil down to a near one-month low as traders try to make sense of a whole host of supply news. Key Opec members have cut production as promised but against this we have doubts about Iraq as well as rising production from Libya and an upgrade to US production,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Oil markets participants are now trying to estimate the excess oil coming from countries like Iraq, which exported 3.64 million barrels a day of crude oil in February – more than it shipped in December – from its ports in Basra province.
This, along with the record long positions, would continue to weigh on sentiment in coming sessions.
“Oil will struggle to move higher as long as a combined record long position exists in WTI and Brent crude oil,” said Saxo Bank’s Hansen.
The combined net-long stood at 790 million barrels with the gross-long staying above 900 million barrels, indicating elevated bullish positions in crude oil.