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Oil prices drop as IEA sees slow market rebalancing

Reuters  |  LONDON 

By Dmitry Zhdannikov

(Reuters) - prices fell on Friday after the International Energy Agency said weak OPEC compliance with production cuts was prolonging a rebalancing of the market despite strong demand growth.

Brent crude, the benchmark, was at $51.83 a barrel at 1220 GMT, down 7 cents, having earlier fallen 50 cents or around 1 percent to its lowest since Aug. 1.

U.S. West Texas Intermediate crude was down 10 cents at $48.49 per barrel, having earlier dropped 1 percent to its lowest since July 26.

touched 2-1/2-month highs on Thursday but closed down around 1.5 percent, with U.S. prices slipping back below $50 amid oversupply concerns.

"There would be more confidence that rebalancing is here to stay if some producers party to the output agreements were not, just as they are gaining the upper hand, showing signs of weakening their resolve," the IEA said in its monthly report.

The IEA said OPEC's compliance with the cuts in July had fallen to 75 percent, the lowest since those curbs began in January. It cited weak compliance by Algeria, Iraq and the United Arab Emirates.

In addition, OPEC member Libya, which is exempt from the cuts, steeply increased output.

"Crude prices failed to hold recent gains, with a nervous market starting to doubt recent falls in inventories," ANZ bank said in a note. "Supply-side issues also weighed on prices."

The IEA also said it had revised historic demand data for 2015-2016, meaning a lower demand base in 2017-2018 combined with unchanged high supply numbers could lead to lower stock draws than initially anticipated.

Saudi Arabian Energy Minister Khalid al-Falih said the kingdom did not rule out additional production cuts, the Saudi-owned Al Sharq Al Awsat newspaper reported.

Meanwhile, U.S. President Donald Trump stepped up his rhetoric against North Korea again, saying his earlier threat to unleash "fire and fury" on Pyongyang if it launched an attack may not have been tough enough.

"I think the issue that is affecting the market is the general risk sentiment of sabre-rattling between Washington and Pyongyang," said Michael McCarthy, chief market strategist at CMC Markets.

(Reporting by Dmitry Zhdannikov; Editing by Dale Hudson and Jason Neely)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

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