Oil prices give up early gains as crude, product glut persists

By Henning Gloystein

SINGAPORE (Reuters) - Oil prices turned away from early gains on Tuesday as the risk premium following the Paris attacks and the French air strikes in Syria faded, and traders began to focus on the global oversupply in crude and petroleum products again.

Analysts said that despite the Paris attacks and French retaliation against Islamic State (IS) in Syria, prices would remain low for the rest of the year and into 2016 as oil markets stay oversupplied, with 2015 production outpacing demand by 700,000 to 2.5 million barrels per day, according to estimates.

Many speculators are even positioning themselves for further price falls.

Front-month U.S. crude futures initially rose towards $42 per barrel but then dipped back to $41.69 a barrel by 0700 GMT, down 5 cents from its last settlement.

Internationally traded Brent crude futures rose towards $44.80 before dropping back to $44.67 a barrel.

"The well-supplied crude market, record high inventories in OECD and lack of a material threat to the oil facilities in the Middle East from the military escalation against IS in Syria are going to prevent geopolitical premiums building in oil prices," BMI Research said.

On the supply side, ANZ bank said that U.S. shale oil production, which many analysts said would fall sharply as a result of lower oil prices, would only dip.

"We estimate crude oil production from U.S. shale fields will fall just 2.5 percent (in Q4)," the bank said, adding that this was a result of falling shale production costs and healthy refined oil product sales.

LOWER FOR LONGER

Money managers cut their net long U.S. crude futures and options positions to the lowest in three months during the week to Nov. 10, the U.S. Commodity Futures Trading Commission (CFTC) said on Monday.

The speculator group cut its combined futures and options position in New York and London by 27,456 contracts to 127,351 during the period.

The cut in bets on higher prices has come in parallel to soaring amounts of contracts actively betting on a further fall in oil.

U.S. crude oil prices have now been lower than $50 per barrel for longer than they were during the height of the global credit crunch in late 2008/2009, and the forward curve also shows less price increases today than it did then.

"It reflects the 'lower for longer' thesis and expectation that it is likely to be a slower rebalancing process than initially anticipated," said Virendra Chauhan, oil analyst at Energy Aspects in Singapore.

(Editing by Anupama Dwivedi and Tom Hogue)