Oil prices decline on concerns of oversupply

The Dollar Business Bureau

Oil prices declined in Asia on Thursday due to improved supply outlook with the commodity prices hovering near the major mark of $50, leading to concerns among the traders about resuming production by the producers.

Crude prices plunged after gaining for two days which saw the commodity cross the benchmark that makes it financially viable for producers to restart production.

The prices of oil had been declining after the financial market turmoil across the globe, followed by last week's UK’s referendum vote to leave the European Union.

The official data released by US Energy Information Administration on Wednesday details the reasons for oil to go on a rising trajectory, when it highlighted the commercial crude inventories of the US, which dropped by 4.1 million barrels and stood at 526.6 million barrels in the week closing on June 24, a symbol of a tightening supply market.

At 0945 IST, the US benchmark West Texas Intermediate has declined 45 cents, or 0.90 percent to $49.43 per barrel. On the other hand, North Sea Brent fell 60 cents or 1.19 percent to $50.01.

As oil settles over $50 a barrel, traders are now worried that producers may be motivated to resume production, burdening the market which is already in oversupply.

Alex Wijaya, a trader at CMC Markets said that oil prices have not been able to stay above $51-$52 since mid-May. However, if the fundamentals change, like a reduction in supply, then the price might see an improvement.

There has been an improvement in supply outlook after an impending strike action was called off in Norway - one of the largest producers of North Sea crude.

In Nigeria, oil output has improved by 200,000-300,000 barrels a day since middle of this month post attacks on oil infrastructure. Prior to the attacks production was around 600,000 bpd output to about 1.25 million barrels a day, which a reduction from 2 million barrels per day at the start of the year.

However, analysts believed that oil prices would increase in the second half of this year, as the supply and demand would be put into equilibrium, ending the oversupply that bring the prices down by about 70 percent between 2014 and early-2016.