US oil hits November low amid fresh glut fears

Oil prices fell on Tuesday, with US crude dropping to its lowest since November, as concerns about new supplies overshadowed the latest talk by OPEC that it was looking to extend output cuts beyond June.

The decline also came ahead of the release of US crude inventory data later Tuesday and on Wednesday that is expected to show a crude stock build of 2.8 million barrels for last week, according to a Reuters poll.

If correct, that would be the tenth weekly crude stock build in the last 11 following a surprise dip in the prior week and could boost inventories back to a record high.

Brent futures for May delivery fell 66 cents, or 1.3 per cent, to settle at $50.96 a barrel, its lowest since March 14.

US West Texas Intermediate crude, meanwhile, shed 88 cents, or 1.8 per cent, to settle at $47.34 per barrel on the last day for the April contract, falling to its lowest since November 29, before a global effort to shore up prices.

The Organization of the Petroleum Exporting Countries and some non-member producers agreed on November 30 to curb production by 1.8 million bpd from January for six months.

But that deal has unintentionally helped what could be the largest increase in mega projects’ production in history, Goldman Sachs said in a research note..

New production projects and a fresh shale boom could boost output by a million barrels per year and result in an oversupply in the next couple of years, the bank said.

“US oil producers are not going to be held back. For every barrel Saudi Arabia takes off, it looks like US E&Ps (exploration and production companies) are going to put on two,” said Kyle Cooper, a consultant for ION Energy in Houston.

The market has declined despite indications on Tuesday that OPEC members increasingly favour extended production cuts but want the backing of non-OPEC oil producers, such as Russia, which have yet to deliver fully on existing reductions.

“OPEC is sticking with a plan that has not worked,” said Phil Davis, managing partner at PSW Investments in Woodland Park, New Jersey, noting they are not offering more cuts and no new countries are joining in the cuts.

Commerzbank said that OPEC cuts would need to last into the fourth quarter to achieve the group’s goal of reducing record oil stockpiles in industrialised nations to their five-year average.

“We think it is very unlikely that Russia will actively take part in any extension of the production cuts that goes beyond paying lip service to the agreement,” Commerzbank said in a note, adding that it would be premature for investors to “pin their hopes” on an extension.

Investors were waiting for data from the American Petroleum Institute (API) at 4:30 p.m. EDT on Tuesday and the US Energy Information Administration (EIA) at 10:30 a.m. EDT on Wednesday.

The WTI delivery hub in Cushing, Oklahoma, could be a particular focus in Tuesday’s API data.

Stocks at Cushing rose in the week to March 10, helping to widen the premium for Brent over WTI . That gap reached as much as $2.84 for May delivery, its highest since the end of January.

“Another increase would be generally bearish for WTI-related spreads,” said Tamas Varga, analyst at London broker PVM Oil Associates.

The market will also be watching out for a fifth straight week of declines in US gasoline stocks – forecast to have drawn 2 million barrels last week – despite the approaching summer driving season.

Gasoline cracks, an indicator of refining margins, earlier on Tuesday reached the widest since Nov. 1.