Oil prices are rallying after trading around seven-month lows overnight amid concerns the Organisation of the Petroleum Exporting Countries' (Opec) output cuts are not doing enough to curb the global oversupply.
Oil slumped to the lowest close in seven months this week as concerns grew that rising US supplies will offset the production curbs by OPEC and allies including Russian Federation. U.S. West Texas Intermediate (WTI) crude futures were at $45.94 per barrel, down 52 cents, or 1.1 percent.
Crude oil prices have dropped this week in response to several reports that show rising output and lackluster demand, with market players questioning the effectiveness of OPEC's production cuts.
In a sign of the continuing supply overhang, traders are again hiring oil tankers to store unsold crude while they wait for higher prices. Adding to the glut is an ongoing rise in US production driven by shale drillers, which has pushed USA output up by 10 percent over the past year to 9.3 million bpd, not far off top exporter Saudi Arabia.
Both Brent and US crude have given up all the gains since the initial OPEC agreement in late November.
Opec now expects United States production to increase by 800,000 barrels per day in 2017.
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Economic expansion in China, a key component of world oil demand growth for many years, is now slowing. Even so, output from USA shale and other non-OPEC sources will essentially capture the entire gain.
The price of oil may sink to between $30 and $35 per barrel next year and stay there for a while, according to Dr. Fereidun Fesharaki, founder and chairman of global oil and gas consulting firm FGE, who spoke to CNBC. The Standard & Poors Energy Sector Index showed a 2.1 drop, overall, with shares of Exxon Mobil falling by 1.4 percent, to hit $81.83; Chevron also fell by almost 2 percent, to hit $106.18.
Iraq, OPEC's second-largest producer, contributed the third-biggest increase with a more than 44,000 bpd jump.
Crude prices will need to remain relatively low until more of the hedges have expired, private equity funding has slowed and drilling moderates to a more sustainable pace.
Crude futures fell sharply Wednesday on higher stockpiles in the US and other rich nations despite the OPEC production deal.