Oil prices dive 3% on soared U.S. crude stocks

United States benchmark West Texas Intermediate (WTI) crude futures gained 34 cents, or 0.68 percent, to.62 a barrel.

There is a worldwide glut of oil now, and the International Energy Agency says the supply looks adequate for the next three years thanks to rising production in the USA and a few other nations.

He added: “I am optimistic about the global market outlook in the weeks and months ahead – though I caution that my optimism should not tip investors into irrational exuberance’ or wishful thinking that Opec or the kingdom will underwrite the investments of others at our own expense”. That’s not an easy question to answer given that oil is now on the verge of breaking below the key psychological level of $50 per barrel – a level that has also served as a key technical support area for traders.

Similarly, Brent crude slumped to its lowest level since December 8 at $52.93, before settling at $53.11, down $2.81 or 5.03 per cent. The jury is still out on the market’s timeline for rebalancing, but the International Energy Agency said in its February Oil Market Report that OECD stocks of crude and products “will remain significantly above average levels”, by the end of 1H17.

While OPEC seems willing to comply with its previously-agreed cuts, continued increases in USA supply may make it less-likely for the cartel to continue cutting output when it meets again in May.

Saudi Arabia’s oil minister Khalid Al-Falih said this week that global inventories are falling slower than expected, opening the door to extend the production cuts deal beyond its initial six months. Observers are keen for any comments that may indicate whether OPEC would extend its output reduction.

Latest data from the US Energy information Administration (EID) shows that the country imported 76.9 million barrels of the country’s oil in 2016. Other countries joined in, pushing the total to almost 1.8 million barrels.

News of a big oil discovery on America’s northwest slope in Alaska by Spanish oil giant, Repsol, didn’t help sentiment, nor did news that Shell is selling most of its interests in the highly expensive Canadian oil sands for $US7.2 billion to concentrate on gas and deepwater projects.

The introductory discussions were the first bilateral meetings with shale producers and investment funds, OPEC Secretary General Mohammed Barkindo said on Tuesday at the CERAWeek energy conference in Houston.

On the flipside, a possible extension of the deal – assuming compliance is high and cheating is low – would give more confidence to the US drillers to increase output at higher oil prices.