Brent crude oil fell below $66 a barrel on Friday after reports that a growing supply glut was boosting inventories worldwide.
Oil futures have rallied strongly since January after collapsing last year but analysts say the rebound may have overshot and could be about to correct.
Although the U.S. oil market is becoming more balanced, production elsewhere is still running well ahead of consumption.
“A mood change is in the air,” Eugen Weinberg, global head of oil and commodities research at Commerzbank in Frankfurt, told the Reuters Global Oil Forum. “The oil price rally looks like it may be slowly running of steam.”
Brent for July LCOc1 was at $65.80 a barrel by 1330 GMT (9.30 a.m. ET), down 90 cents. U.S. crude for June CLc1 was down $1.10 at $58.78 a barrel.
Market forecasters including the International Energy Agency (IEA) say big oil producers in OPEC are pumping at least 2 million barrels per day (bpd) more than required, filling up inventories from Europe to China. [IEA/M][OPEC/M]
The U.S. government’s Energy Information Administration says that world oil stocks are rising at 1.95 million bpd this quarter and will continue to build until at least the end of 2016. [EIA/M]
Though demand for fuel is likely to pick up in the second half of this year, the current oversupply is so great there is unlikely to be a shortage any time soon unless there is a major, unexpected interruption to production.
“We have an oversupply of more than 2 million bpd, almost 3 million bpd. It must weigh on the market,” Weinberg said.
Thomas Pugh, economist at Capital Economics, agreed: “The rally got ahead of itself. We think oil prices are more likely to fall over the rest of this year than rise.”