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Oil prices were mainly flat Thursday after weeks of gains, but analysts now question whether crude will continue that positive momentum given a lack of significant change in the supply side of the market.
The global benchmark, Brent LCOM6, +0.49% , is trading down 0.21% at $47.07 a barrel. Its U.S. counterpart, West Texas Intermediate CLM6, +0.04% is trading up 0.18% at $45.41 a barrel.
Earlier this month, major oil-producing nations failed to agree on a production freeze at Doha after Saudi Arabia appeared to walk away from any agreement that didn’t include geopolitical rival Iran. That reminded analysts of the inability of producers to coordinate production and that there is more oil that could enter the market from countries like Iran.
“There’s been two attempts to freeze oil output which have both driven up the price, but fundamentally non-U.S. production has increased, so freeze talks could be seen as a cheap way to move prices,” said Edward Bell, commodity analysts at Dubai-based bank Emirates NBD.
Data released by the U.S. Department of Energy Wednesday showed a decline in crude production in the U.S. for the seventh consecutive week, reducing production by 300,000 barrels since the beginning of the year.
But outside the U.S., many oil producers are still pumping at full capacity, with little indication of the sort of cooperation that would bring this down.
Doha’s failed meeting re-emphasized the importance of political risk in the oil market, with Saudi Arabia’s abandoning its support for a freeze, Bell said.
As supply continues to flow, there are little signs that demand will increase enough to soak it up.
So the recent sharp price rally means that the market is susceptible to a sudden selloff if investors refocus on the market’s continue oversupply, some analysts said.
Still, other analysts believed the price rally is justified by a physically rebalance. Demand will outstrip supply in the second half of the year, said Jason Gammel of Jefferies.
For others, India is the focus. The country’s crude production is falling, just as its demand is rising, with the country set to overtake Japan as the world’s third largest oil consumer, according to London-based Howe Robinson. In a note, the shipbroker said that oil output in India fell in the year to March 31, by just over 10,000 barrels per day on the same period in the previous year. Meanwhile, oil imports rose by 6.7% to 4.06 million barrels per day.
Nymex reformulated gasoline blendstock for May RBK6, -0.56% — the benchmark gasoline contract — fell 0.9% to $1.58 a gallon.
