By Georgi Kantchev And Nicole Friedman
NEW YORK--Oil prices ticked lower Tuesday, halting a rally that
many analysts say might not be sustainable.
U.S. oil prices have risen close to 30% since a low in March on
expectations the oversupplied market will come into balance later
in the year. But analysts have warned that although U.S. oil
production could stop growing or even fall in the coming months,
other major producers are still pumping at a fast pace,
exacerbating the global glut.
Light, sweet crude for May delivery recently traded down 21
cents, or 0.4%, to $56.17 a barrel on the New York Mercantile
Exchange. The May contract expires at settlement Tuesday. The
more-actively traded June contract fell 45 cents, or 0.8%, to
$57.43 a barrel.
Brent, the global benchmark, recently fell 59 cents, or 0.9%, to
$62.86 a barrel on ICE Futures Europe.
Oil prices have risen in nine of the last 11 trading sessions
but are still off more than 40% from last summer's peak.
"While the shift in sentiment isn't necessarily flawed, the
swing to the extreme is overdone," said analysts at London-based
consultancy Energy Aspects.
Market participants are bracing for the latest U.S. supply data,
due Wednesday. The U.S. Energy Information Administration has
reported a drop in weekly production in two of the past three
reports, and many market watchers are waiting to see if the trend
will continue.
"The weekly numbers on production are an estimated output of a
model, rather than being observed data," and therefore are
unreliable, said Citigroup in a note. "The risk to the market is
now that the rally has come too soon for supply to get meaningfully
curtailed," which could set prices up to drop again in the second
half of the year, the bank said.
The American Petroleum Institute, an industry group, will
release its own U.S. inventory data later Tuesday.
Market observers are also starting to speculate whether the
Organization of the Petroleum Exporting Countries will make any
changes to its stance of keeping its oil-production quota at 30
million barrels a day at its next meeting in June.
Key OPEC members like Saudi Arabia and Iraq have been increasing
their production in recent months, leading the organization to
overshoot its own target output.
According to J.P. Morgan, oil prices have stabilized and the
medium-term outlook has improved substantially since the beginning
of the year.
But the bank cautions that "near-term price volatility could
persist as supply from the Middle East is expected to remain high,
with Saudi Arabia and Iraqi production on the rise."
J.P. Morgan sees Brent averaging $59 a barrel this year and
rising to $62 a barrel in 2016. U.S. oil prices will average $52 a
barrel this year and rise to $54 in the next, the bank says.
Gasoline futures recently fell 1.2% to $1.9086 a gallon. Diesel
futures slipped 0.2% to $1.8733 a gallon.
Write to Georgi Kantchev at georgi.kantchev@wsj.com and Nicole
Friedman at nicole.friedman@wsj.com
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