Oil price falls below $US50, OPEC eyed

Crude prices have edged back below the key benchmark, amid profit taking and a stronger greenback.

Crude oil prices were below the $US50 threshold during early Asian trade Friday, thanks to profit-taking and a stronger dollar, after breaching the key milestone the day before.

The earlier upswing, stoked by a weaker greenback and the unexpected drawdown in US crude inventories last week, lasted less than a day as higher oil prices stirred up concerns that some previously marginalised producers would restart or ramp up production as prices ascend.

“The $US50 mark was a psychological barrier and not a true reflection of what’s happening in the supply and demand of the market,” said Gao Jian, an energy analyst at SCI International.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in July traded at $US49.11 a barrel at 0303 GMT, down $US0.37 in the Globex electronic session. July Brent crude on London’s ICE Futures exchange fell $US0.43 to $US49.16 a barrel.

Rise in the US dollar also stifled oil prices from advancing. The WSJ dollar index last showed the greenback was up 0.1 per cent at 87.44. The dollar has gained 2.8 per cent since early May, according to the US dollar index. Analysts say the greenback could rise further in anticipation of a US interest rates rise, as early as June or July.

As oil is pegged to the dollar, a strong greenback doesn’t bode well for traders using different currencies.

Despite the recent retreat, prices are still up nearly 90 per cent from a 13-year low in February, thanks to disruption to production in places like Canada and Africa. Production in China and US have also been sliding. Last week, US crude output fell 8 per cent on-year to 8.8 million barrels a day. In China, output dropped 5.6 per cent in April.

However, these shortfalls are being offset by increasing production by members of the Organisation of the Petroleum Exporting Countries. In April, global oil supplies rose by 250,000 barrels a day while OPEC production rose by 330,000 barrels a day, driven by Iran, Iraq and the United Arab Emirates, the International Energy Agency said in a report earlier this month.

“As long as oil prices retains the upward momentum, OPEC will see less reason to freeze or cut production in the upcoming meeting,” said a Singapore-based fuel oil trader.

In the last OPEC gathering in mid-April, members failed to agree on a production cap. While the market was not surprised by the discord, the prospect of a world further drenched in oil weighed on sentiment. The next OPEC meeting is scheduled for June 2 in Vienna, Austria.

Tim Evans, a Citi Futures analyst said that while an agreement to freeze or reduce output is still unlikely, it would “leave open the possibility of a further increase in OPEC total production” as Iran, Kuwait, Iraq and Saudi Arabia are expected to roll out more barrels. Together, production by these countries made up around 63 per cent of OPEC’s total production in April, based on data in the OPEC May report.

Nymex reformulated gasoline blendstock for June — the benchmark gasoline contract — fell 33 points to $US1.6162 a gallon, while June diesel traded at $US1.4938, 75 points lower.

ICE gasoil for June changed hands at $US443.25 a metric ton, down $US5.00 from Thursday’s settlement.