Oil prices tumbled more than 5 per cent in volatile trading on Tuesday as planned production curbs by global producers, led by Saudi Arabia and Russia, failed to allay concerns about oversupply stoked by swelling US shale output.
Fears about weaker oil demand amid a potential slowdown in the global economy have also added to worries about how effective the supply cuts agreed earlier this month will be.
The fall in oil comes amid broader pressure on global equities markets due to persistent worries over how the US-China trade war could hit economic growth.
“The effect of the announced production cuts after Opec’s meeting [earlier this month] has evaporated entirely,” said Carsten Fritsch at Commerzbank. “Prices are continuing to nose-dive.”
Brent crude, the international benchmark, declined 5.6 per cent to settle at $56.26 a barrel in its third straight day of declines. The rout was more severe in US benchmark West Texas Intermediate, which settled 7.3 per cent lower at $46.26, the lowest level since August 2017.
Global producers have agreed to cut production by 1.2m barrels a day to halt a more than 30 per cent slide in oil prices, since Brent hit $86 a barrel in October. The move came in defiance of US president Donald Trump, who had called for Opec to keep output elevated and prices low.
Record output from Saudi Arabia — of above 11m barrels a day — since July has added to the pricing pressure caused by the decision by the US to issue waivers to buyers of Iranian oil to allow more oil than anticipated on to the market.
Iranian output and exports have still fallen sharply this year and other producers such as Venezuela have seen a slide in their supplies because of turmoil in their countries. Production and exports from Libya’s largest oilfield, El Sharara, have also been halted due to security issues.
But this has not been enough to help firm up oil prices as hoped by global producers, which largely rely on revenues from crude exports to support their economies.
Data from the US energy department showed that the US has surpassed Russia and Saudi Arabia as the world’s biggest oil producer, with overall crude production climbing to a weekly record of 11.7m b/d.
Barring a continued slide in oil prices, US production growth looks set to continue. The number of wells that have already been drilled but left uncompleted in the booming Permian Basin of Texas and New Mexico rose by 248 last month to 4,039, the energy department said on Monday.
At the Permian trading hub of Midland, Texas, WTI was selling for less than $39 a barrel on Tuesday, according to Thomson Reuters.
The US growth has fuelled doubts about the effectiveness of the supply curbs by other large producers and raised questions among traders and analysts about how long Opec and its allies will be willing to trim its supplies to the benefit of US rivals.
Market participants are also questioning how much Russia, a key member of a global oil alliance, will pull back on its production, after also hitting a record level above 11.4m b/d in December.
Additional reporting by Adam Samson, Alice Woodhouse and Gregory Meyer