Oil drops to lowest since November as US inventories swell

Pressure on the Opec to extend output cuts beyond June

Oil prices slid to almost four-month lows on Wednesday, with Brent briefly falling below $50 a barrel, after data showed US crude inventories rising faster than expected, piling pressure on the Organisation of the Petroleum Exporting Countries (Opec)  to extend output cuts beyond June.

The US Energy Information Administration (EIA) said US inventories climbed almost 5 million barrels to 533.1 million last week, far outpacing forecasts of 2.8 million. 

"A persistent increase in US oil production, together with a rise in imports from Canada, contributed towards a large build in crude oil inventories," said Abhishek Kumar, senior energy analyst at Interfax Energy in London.

"The market remains nervous about rising US production, which is also reducing the effectiveness of output cuts by the Opec and some non-Opec countries," Kumar added.

Global benchmark Brent futures for May delivery were down 84 cents, or 1.7 per cent, at $50.12 a barrel by 10:54 am EDT (14:54 GMT). The contract fell as low as $49.71.

On its first day as the front-month, US West Texas Intermediate (WTI) crude futures for May were down 77 cents, or 1.6 per cent, at $47.47 per barrel. The session low was $47.01.

Both benchmarks hit their lowest since November 30 when the Opec countries agreed to cut output, and both remained in technically oversold territory. WTI was oversold for the third day in a row, Brent for the second.

A deal between the Opec and some non-OPEC producers to reduce output by 1.8 million barrels per day (bpd) in the first half of 2017 has done little to reduce bulging global oil stockpiles.

Opec, which sources say is leaning toward extending cuts, has broadly delivered on pledged reductions, but non-Opec states have yet to cut fully in line with commitments.

"Opec has used up most of its arsenal of verbal weapons to support the market. One hundred per cent compliance by all is the only tool they have left and on that account they are struggling," said Ole Hansen, head of commodity strategy at Saxo Bank.

US shale oil producers have been adding rigs, boosting the country's weekly oil production to about 9.1 million bpd for the week ended March 10 from an average 8.9 million bpd for 2016, according to US data.

"Opec's market intervention has not yet resulted in significant visible inventory drawdowns, and the financial markets have lost patience," US bank Jefferies said in a note.

But the bank said the market was undersupplied and, if the Opec extended cuts into the second half, inventories would draw down and prices recover above $60 in the fourth quarter.

However, it said US crude production was expected to grow by 360,000 bpd in 2017 and 1 million bpd in 2018, and a price recovery could spur more US shale activity.