LONDON—Oil prices started the week lower as investors turned their focus back on the global glut of crude.
Crude oil futures have stabilized in recent weeks as investors saw declining drilling activity in the U.S. as a tentative sign that the global oversupply would soon start to abate. Analysts, however, caution that market fundamentals are still bearish, with U.S. inventories continuing to hit new records and some of the biggest Middle Eastern producers keeping their output stable despite the price rout.
Brent crude for April delivery on London’s ICE Futures exchange fell 0.8% to $59.26 a barrel. The contract lost 4.6% last week and has fallen for two of the past three weeks.
On the New York Mercantile Exchange, West Texas Intermediate futures traded at $49.57 a barrel, down 0.1% from Friday’s settlement. It lost 0.3% last week and has been down for three consecutive weeks.
“Very high inventory levels are perhaps the main micro reason to remain cautious on oil prices,” analysts at Bank of America Merrill Lynch said in a report projecting a global inventory build of 180 million barrels by the third quarter of 2015. While the bank upgraded its oil price forecasts on the back of a stronger February, it said prices are bound to fall again. “We remain bearish, but in a different shade of gray.”
The bank sees WTI ending the second quarter at $41 a barrel, while Brent is expected to fall to $48 a barrel over the same period.
On Sunday, Abdalla Salem el-Badri, the secretary-general of the Organization of the Petroleum Exporting Countries, said lower oil prices were hurting the U.S. shale industry and a global pullback on investment could lead to a shortage that boosts oil prices.
Other top officials at the Middle East Oil and Gas conference in Bahrain said they would continue pumping oil despite the collapse in oil prices. OPEC decided in November to keep its oil output stable, despite the declining prices, in a bid to defend its market share against other emerging oil producers including the booming U.S. shale oil industry.
As a sign of the impending supply cuts in the U.S., the closely watched oil-rig count fell by 64 to 922 last week, according to Baker Hughes Inc. —the 13th straight week of declines.
However, Goldman Sachs said U.S. oil producers are already preparing to ramp up activity later this year by successfully raising equity, reducing debt and building a pipeline of unfinished wells that can start production when oil prices are favorable.
“Our expectation going forward is therefore for the global crude inventory build to resume,” Goldman analysts wrote in a report. “As a result and absent further unexpected OPEC disruptions, we expect Brent oil prices and timespreads to reverse their recent strength.”
Nymex reformulated gasoline blendstock for April-—the benchmark gasoline contract—fell 0.7% to $1.8686 a gallon, while ICE gas oil for March changed hands at $576.50 a metric ton, down $5.75 from Friday’s settlement.
