Oil edges lower as oversupply weighs

Oil prices drifted lower on Monday, extending last week's decline amid a global oversupply, with trading activity severely limited by market holidays in Europe. (AFP/Haidar Mohammed Ali)

NEW YORK: Oil prices drifted lower on Monday (Mar 28), extending last week's decline amid a global oversupply, with trading activity severely limited by market holidays in Europe.

US benchmark West Texas Intermediate for delivery in May fell seven cents to US$39.39 a barrel on the New York Mercantile Exchange. In London, Brent North Sea for May delivery, the European benchmark, fell 17 cents to US$40.27 a barrel.

"The steam has gone out from the bull market for now," said Mike Lynch of Strategic Energy & Economic Research. "Unless we get some more serious bullish - either inventories information, news out of OPEC or economic - news, so far we're still waiting."

Oil prices last week posted their first weekly decline in a month and a half. Much of the downturn reflected pressure from a US government report that said US commercial crude inventories had jumped a huge 9.4 million barrels in the prior week, adding to worries about the long-running global glut.

Before that, oil had rebounded since February on speculation that major producers could agree to freeze output or take some action to curb falling prices. Members of the Organisation of the Petroleum Exporting Countries (OPEC) and key non-members led by Russia are due to discuss a proposed output freeze at a meeting in Doha on Apr 17.

"The petroleum markets have been unable to hold minor overnight gains as traders are beginning to focus more on rising inventories than on hopes that a meeting between most OPEC producers with Russia and some other non-OPEC producers will transform a surplus into a deficit," said Tim Evans of Citi Futures.

Evans said that based on the producers' stated agenda for freezing output at January levels, a bullish outcome for the market was not anticipated. "We see potential for prices to begin weakening even ahead of the meeting as this probability begins to sink in," he said.

Bernard Aw at IG Markets noted that market business was modest due to the long Easter break across most world markets. "Everything hinges on the meeting between OPEC and non-OPEC producers," Aw said. "If it takes place and they come to some agreement of a production freeze, we could see some gains well beyond US$40."