Oil prices fell to fresh five-month lows on Friday on concerns about a persistent glut despite assurances from Saudi Arabia that Russia was ready to join OPEC in extending supply cuts.
U.S. West Texas Intermediate (WTI) crude oil futures fell more than 3 percent in early trading to below $44 per barrel, the lowest since Nov 14. It fell 4 percent on Thursday.
Benchmark Brent also fell 3 percent to below $47 per barrel, its lowest since Nov 30, which was the date the Organization of the Petroleum Exporting Countries (OPEC) triggered a rally when it said it would cut production in the first half of 2017.
Both benchmarks trimmed losses to trade close to Thursday’s close by 1007 GMT after Saudi Arabia’s OPEC Governor Adeeb Al-Aama told Reuters OPEC and non-OPEC nations were close to agreeing a deal on supply cuts.
“Based on today’s data, there’s a growing conviction that a six-month extension may be needed to rebalance the market, but the length of the extension is not firm yet,” the Saudi official said.
OPEC sources said on Thursday OPEC was likely to extend cuts when it meets on May 25 but said a deeper cut was unlikely. OPEC and non-OPEC states initially agreed to cut 1.8 million barrels per day (bpd) in the first six months of 2017.
Brent traded volumes on Thursday reached an all-time high of nearly 542,000 contracts suggesting hedge funds had accelerated cuts in their long positions.
“It is now-or-never for oil bulls,” said U.S. commodity analysis firm The Schork Report. “They either put up a defence here or risk further emboldening the bears for a run at the $40 threshold (for WTI).”
Both Brent and WTI futures are down about 17 percent for the year so far despite the OPEC effort to support prices. The benchmarks are trading around levels last seen before the joint deal to cut output was announced by OPEC and non-OPEC states.
“So far OPEC’s strategy to draw down inventories has not worked,” Neil Beveridge, senior analyst at AB Bernstein in Hong Kong, wrote. “It seems obvious to us that OPEC will need to keep the cuts in place for longer than the next six months if their strategy is to have any chance of success.”
Adding to concerns about bulging inventories, traders pointed to soaring U.S. oil output, which is up more than 10 percent since mid-2016 to 9.3 million bpd, almost matching output of top producers Russia and Saudi Arabia.
“Any likelihood of an increase in the level of cuts remains slim with OPEC officials playing down this possibility,” said James Woods, global investment analyst at Rivkin Securities.