Oil prices ease from June highs on weaker physical market

Oil futures dipped on Thursday after Saudi Arabia trimmed the price of its flagship crude to Asia, but were still near more than three-month highs following a drop in US crude inventories.

US West Texas Intermediate (WTI) crude futures were trading at $49.55 per barrel at 0544 GMT, down 28 cents or 0.6 per cent from their last settlement.

International Brent futures were down 28 cents, or 0.5 per cent, at $51.58 per barrel.

Both contracts hit their highest levels since June on Wednesday after the US Energy Information Administration (EIA) said crude stockpiles fell 3 million barrels last week to 499.74 million barrels. Despite the drawdowns, stocks were still close to all-time highs.

Traders pointed to profit taking following recent price rises and said Thursday's fall also reflected weaker physical crude after top exporter Saudi Arabia cut the price of its Arab Light crude to Asian customers for November in a sign that the global fuel supply overhang persists.

Another potential cap on prices comes from the United States.

Jeffrey Halley, senior market analyst at brokerage OANDA in Singapore, said that at around $50 a barrel for WTI, US shale drillers, who have spent much of the year cutting back unprofitable production amid low prices, may start bringing back mothballed rigs.

Overall, however, most analysts said that the market was well supported at current levels, especially because of a planned output cut by the Organisation of the Petroleum Exporting Countries (OPEC).

There were also risks of forced supply disruptions, especially in North Africa, Nigeria, and Venezuela.

"Oil prices seem headed for higher levels in the coming period," Global Risk Management said in its quarterly report this week, pointing to the risk of "several oil producing countries struggling to increase or even keep production at current levels due to unrest/oil facility wreckages and lack of industry investments".

Barring such a disruption, most analysts did not expect prices to shoot up much further as production will remain high even with an OPEC cut, and plenty of fuel remains in stock.

"Resilient production in the US and Russia will postpone crude market rebalancing and keep the market in surplus into 2017," BMI Research said in a note to clients, even cutting its price forecast for next year.

"With an insufficient demand response to counteract strong supply, the result is a downward revision of our 2017 Brent forecast to $55 per barrel from $57 per barrel," BMI said.