Oil prices fell on Tuesday on concerns that output cuts by the world’s big exporters may not be enough to drain a global glut that has depressed the market for almost three years.
According to Bloomberg, Benchmark Brent crude LCOc1 dropped $1.10 a barrel, or more than 2 percent, to a low of $51.19 before recovering some ground to trade around $51.30 by 1345 GMT (9:45 a.m. ET). U.S. light crude CLc1 was 65 cents lower at $49.15.
“The oil market remains on the back foot,” said Stephen Brennock, analyst at London brokerage PVM Oil Associates.
“Last week’s decision by OPEC to extend its output pact (has failed) to alleviate lingering fears of a global oil glut.”
The Organization of the Petroleum Exporting Countries and other oil producers, including Russia, agreed last week to keep a tight rein on supply until the end of the first quarter of 2018, nine months longer than originally planned.
Collective output by OPEC and other producers will be held around 1.8 million barrels per day (bpd) below its level at the end of last year.
But the cutbacks have yet to drain inventories significantly and prices fell sharply after the OPEC deal was announced.
Part of the problem for OPEC is oil supply in the United States, where shale production is booming.
U.S. drillers have added rigs for 19 straight weeks to reach 722, the highest since April 2015, according to services firm Baker Hughes (BHI.N).
Goldman Sachs analysts have reduced their forecasts for oil prices, saying falling U.S. production costs will keep supply rising for years to come.
The bank said that once OPEC’s production growth resumes after its self-imposed cuts, U.S. and OPEC output would rise by 1 million to 1.3 million bpd between 2018 and 2020.
“While we are bullish on near-term prices as inventories normalize … 2018-19 futures need to be in the $45-$50 range,” Goldman said.
The American summer driving season, which by tradition started on the Memorial Day holiday on Monday, may offer some support for prices, analysts said.
Demand in the United States for transport fuels tends to rise as families visit friends and relatives or go on vacation during the Northern Hemisphere summer.
The American Automobile Association said ahead of Memorial Day that it expects 39.3 million Americans each to travel 50 miles (80 km) or more away from their homes over the Memorial Day weekend, the highest Memorial Day mileage since 2005.