Oil falls on supply worries ahead of US inventory data

An oil rig. (AFP Photo)

NEW YORK: World oil prices retreated on Tuesday (Mar 29) as worries about global oversupply returned to the forefront ahead of a US petroleum inventory report.

US benchmark West Texas Intermediate for May delivery lost US$1.11 at US$38.28 a barrel on the New York Mercantile Exchange. Brent North Sea oil for May delivery fell US$1.13 to US$39.14 a barrel in London.

The losses came ahead of a Wednesday US petroleum inventory report that many analysts believe will show another build in supplies.

Analysts also cited rising doubts about a potential deal of major producers to limit output, with those questions underscored by an agreement on Tuesday between Saudi Arabia and Kuwait to resume pumping oil at the offshore Khafji field.

Production at Khafji, which pumped over 300,000 barrels per day and was jointly operated by the two countries, was halted in October 2014. Riyadh cited environmental issues for the shutdown. But the two sides plan to ramp up output "gradually," said Kuwait acting oil minister Anas al-Saleh.

However, analysts questioned how the Khafji deal fits into a promise by Saudi Arabia and Kuwait to abide by a potential agreement of major producers to cap output. Major producers are set to convene in Qatar in April.

"A freeze may be tested" by Khafji, said Tim Evans, analyst at Citi Futures. "Without some clarification to the effect that overall output won't be increased, even the freeze idea may not hold," Evans said.

Gary Cunningham, manager of market research at Tradition Energy, said even if a deal among major producers is enacted and respected, "you're still going to have considerable overproduction."

Oil prices rallied a bit following a speech by Federal Reserve Chair Janet Yellen that signalled a cautious approach to further US interest rate hikes, depressing the dollar. A weaker dollar is supportive of oil prices, but analysts said the impact was not enough to offset concerns about oversupply in the oil market.

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