LONDON (April 4): Oil prices fell on Tuesday as a rebound in Libyan crude production combined with an increase in US drilling to signal the potential for increased supply.
Benchmark Brent crude oil was down 20 US cents at US$52.92 a barrel by 0735 GMT. US light crude oil was 20 US cents lower at US$50.04 a barrel.
Both benchmarks recovered from four-month lows last week on expectations that the Organization of the Petroleum Exporting Countries would manage to tighten supply by cutting production under a deal agreed at the end of last year.
But global inventories remain stubbornly high and many investors are betting that it will take many months for oil prices to respond convincingly to lower OPEC output.
"Crude oil prices fell as increased drilling in the United States and a rebound in Libyan output weighed on investor sentiment," ANZ bank analysts said in a note to clients.
Libya's crude output increased after state-owned National Oil Corp (NOC) lifted a force majeure on loadings of Sharara oil from the Zawiya terminal in the west of the country, sources familiar with the matter told Reuters.
US drillers last week added rigs for an 11th week in a row, data from energy services company Baker Hughes showed on Friday, extending a 10-month drilling recovery.
US light crude may drop to US$49.62 a barrel as it failed to break resistance at US$50.95, said Reuters commodities markets technical analyst Wang Tao. Brent crude may retrace back to US$52.79 per barrel, he said.
UBS analyst Giovanni Staunovo said OPEC was taking longer than expected to tighten the oil market but recent data suggested the process was under way in earnest.
"We believe the implemented production cuts will trigger a material drawdown in OECD oil inventories and thus higher crude oil prices," Staunovo said. "We expect Brent oil prices to rise above US$60 a barrel in three months."