Crude oil futures slid Monday on concerns about oversupply and a strong dollar before U.S. government data forecast to show crude inventories, already at record highs, could swell further in the world’s biggest consumer.
Oil prices opened lower stayed in red for almost the whole trading session, advancing for a short time period after the Financial Times quoted Nigerian Oil Minister Diezani Alison-Madueke as saying the country is seeking an OPEC extraordinary meeting in the next six weeks or so if prices continued to move lower. The market remains under pressure after Friday’s data showing a slowdown in the weekly decline in the US drilling rig count. It also showed that domestic crude inventories reached their top level in about 80 years.
“Troubles continue to grow for the U.S. crude market,” Morgan Stanley said in a weekly report, adding that U.S. data on supply and drilling are “likely to appear ominous” in the coming weeks.
U.S. crude for April delivery, the most actively traded contract, dropped $1.36, or 2.7%, to end the day at $49.45 a barrel. The April ICE contract for Brent crude oil suffered a fall of $1.32, or 2.2%, to settle at $58.90 a barrel.
NYMEX-U.S. crude fell 4.6% last week, higher as compared to Brent crude, which declined 2.1%.
The latest data from Baker Hughes showed a weekly drop in the number of rigs in use in the US, but the decrease in activity was “not as fast as traders had been hoping,” said Colin Cieszynski, chief market strategist at CMC Markets.
BNP analysts believe that the impact of fewer U.S. drilling rigs will become visible later this year. The changes will take effect after mid-2015, consistent with the time lag between lower drilling activity and production, they said.
Oil prices Monday also got hurt by news that Libya’s largest oil field at Sarir resumed operations on Sunday. It stopped operational activities after a pipeline was blown up about a week ago by unknown militants. In addition, the key oil export terminal at Zueitina in eastern Libya also started working again.
But traders paid no importance to a report Monday which said members of the Organization of the Petroleum Exporting Countries held talks to call an emergency meeting if crude continues to slide.
The reason could be that the OPEC president was from Nigeria, a country that is not seen as enough powerful in OPEC and is not in good economic condition in the wake of low oil prices. The cartel’s current strategy is the one driven by Saudi Arabia, OPEC’s largest producer.
“The market is obviously just skeptical” of the report, said Dominick Chirichella, analyst at the Energy Management Institute. “The market is in a mode of starting to just slowly recognize that inventories are surging.”
