Oil prices dip on oversupply concerns

Crude Oil Production

Crude Oil Production

Oil prices fell in Asia on Thursday as supply outlook improved with both commodities hovering close to the key $50 mark, worrying traders about producers coming back online.

Crude dipped after two days of strong gains which saw the commodity soar past the benchmark that makes financial sense for producers to restart production.

Prices had been falling following the global financial market turmoil that followed last week’s British vote to bolt out of the European Union.

Official US data released Wednesday sent oil on an upward trajectory when it showed the country’s commercial crude inventories fell by 4.1 million barrels to 526.6 million barrels in the week ending June 24, a sign of a tightening supply market.

At about 0415 GMT, US benchmark West Texas Intermediate was down 45 cents, or 0.90 percent, to $49.43 a barrel while North Sea Brent was down 60 cents, or 1.19 percent, to $50.01.

Traders are now concerned that as oil holds over $50 a barrel, producers may be encouraged to restart production, adding on to a market already in oversupply.

This “is a key psychological resistance level because it’s also the price that makes financial sense for producers to restart production,” CMC Markets trader Alex Wijaya told AFP.

“Since mid-May, oil has not been able to hold above $51 to $52 but if the fundamentals change, such as a drawdown in supply, then there might be an improvement in price,” he added.

Supply outlook has improved after looming strike action in Norway — one of the biggest producers of North Sea crude — was called off.

The commodity has tailed equity markets where trading floors are rife with talk of fresh stimulus measures from key central banks.

After a $17 billion boost by South Korea, Japan is in focus after the country’s prime minister, finance minister and central bank boss held talks Wednesday.

“The initial shock over the UK voting out of the EU is easing across the world,” Mitsushige Akino, a Tokyo-based executive officer at Ichiyoshi Asset Management Co. told Bloomberg News.

“We’ve survived the event-related risk, and investors are beginning to see that the impact on the actual economy is limited. There’s hope for policy measures globally, not just in Japan, so that’s supporting markets,” he added.

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