Oil prices drop as concerns over global fuel glut re-emerge

Oil prices fell more than one percent on Wednesday as a report showing a surge in U.S. crude stocks, rising production in Nigeria and squabbling among producers about a planned output cut re-ignited concerns about a global supply glut.

According to Reuters’ report monitored by Business247 News Online, brent crude futures LCOc1 were down 51 cents, or 1 percent, at $50.28 a barrel as of 0648 GMT. Prices hit $50.13 earlier in the session, the lowest since October 3.

U.S. crude CLc1 was at $49.37 per barrel, down 59 cents, or 1.2 percent, from its settlement on Tuesday. It dropped to $49.21 earlier, the lowest since Oct. 10.

“Crude is on the defensive this morning following American Petroleum Institute (API) inventory numbers showing a rise of 4.8 million barrels against an expected rise of 1.7 million,” said Jeffrey Halley, senior market analyst at brokerage OANDA in Singapore.

Official data by the Energy Information Administration (EIA) is due later on Wednesday.

“EIA crude inventory figures will be closely watched tonight. A large jump in inventories will no doubt see crude pushed lower again,” Halley said.

The oil market is also keeping an eye on U.S. currency movements for trading cues.

The dollar hit a nine-month peak overnight against a basket of currencies .DXY, underpinned by expectations of U.S. rates will rise by the year-end, making commodities priced in the greenback more expensive for holders of other currencies. [USD/]

“Technical resistance with Brent above $50 might (also) be driving some activity,” said Michael McCarthy, chief market strategist at Sydney’s CMC Markets.

According to a Reuters’ market analyst, Brent could drop further to $49.67, the next support level.

Traders said squabbles within the Organization of the Petroleum Exporting Countries (OPEC) about a planned output cut later this year were also weighing on oil markets.

Iraq, OPEC’s second biggest oil producer, wants to be exempt from the cut, arguing it needs the revenues to fight Islamic State.

“Iraq is aiming to expand its oil sector through smaller field developments to lower reliance on the major oil fields and their operators for growth,” said energy consultancy BMI Research in a report on Wednesday.

“Proposals to negotiate contract terms will attract new companies and investment, though we expect bilateral negotiations to delay contract awards,” the report said.

Other OPEC-members, including Libya and Nigeria, are likely to be exempt from cutting production, while Iran and Venezuela and Indonesia are also unlikely to reduce output.

Royal Dutch Shell (RDSa.L) has resumed crude exports from the Forcados terminal in Nigeria’s restive Niger Delta following repairs after a militant attack, the Nigerian presidency said late on Tuesday.

Unless non-OPEC production giant Russia joins the effort, that leaves the onus of a potential cut with Arab producers in the Middle East like Saudi Arabia, Kuwait and the United Arab Emirates (UAE).

“OPEC appears to be approaching the limits of its ability to jawbone oil higher without something concrete to put on the table,” OANDA’s Halley said.