Oil prices drop about 3 percent on Tuesday, pulling back after six days of increases for benchmark Brent crude, as Goldman Sachs indicates the rally was unsustainable and analysts predict data likely to display another record high in U.S. stockpiles. Various views on a plan to limit oil output also put the market on the defensive. Kuwait, making 3 million barrels per day, stated it will freeze output only if all major producers play ball, including Iran, which has hesitated at the plan. “The comments out of Kuwait have encouraged the sell-off and it appears likely that a focus on weekly oil inventories will encourage prices lower,” stated Matt Smith, director of commodity research at New York-based Clipper Data.
Brent fell $1, or 2.5%, at $39.84 a barrel by Tuesday afternoon. During the session it saw a 2016 high of $41.48, that increased more than 50% from a 12-year lows of $27.10 struck less than two months ago. U.S. crude fell $1.23, or 3.3 percent, to $36.67 a barrel, rebounding earlier to a three-month high of $38.39. Goldman Sachs stated rising oil prices “simply are not sustainable in the current environment.” The energy market “needs lower prices” to keep U.S. shale producers from boosting up output, Goldman said in a report. Otherwise, “an oil price rally will prove self-defeating, as it did last spring.”
An analyst poll of oil analysts forecast that U.S. crude stocks likely increased 3.6 million barrels last week, pushing total inventories to a record high for a fourth week. The API will release more preliminary stockpiles data at 4:30pm, prior to official numbers on Wednesday from the U.S government’s Energy Information Administration. A global supply glut in oil has brought prices down from highs above $100 in mid-2014.
North Sea crude supply should saw a four-year peak in April, holding above 2 million bpd for an eighth straight months, monthly loading programmes show. In a development that could endorse a further rally, the EIA stated it expected U.S production for this year to fall 760,000 bpd in comparison to 740,000 bpd previously. It also cut its 2016 demand growth forecast by 80,000 bpd versus 110,000 barrels previously. While China’s crude imports increased 19% between January and February to 31.80 million tonnes, Brent’s rebound to $40 could halt oil purchases in the second quarter, trade sources stated. China’s economic health also stayed in question, with total exports dropping 25% in February.