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Oil tumbles amid oversupply fears, unlikelihood of deeper Opec cuts

09 May 2017

Brent crude futures, the Global benchmark for oil prices, were at $48.41 per barrel at 0047 GMT, up 3 cents from their last close.

Rising U.S. production and stubbornly high inventories remain key drivers of the oil price, but equally important is the level of compliance among members of the Organization of the Petroleum Exporting Countries to their pledge to cut output by 1.2 million barrels per day.

Oil prices slumped to five-month lows Thursday, dragging on the already slumping The United States Oil Fund (NYSEArca: USO), which tracks West Texas Intermediate crude oil futures, and the United States Brent Oil Fund (NYSEArca: BNO), which tracks Brent crude oil futures.

Analysts said that OPEC would look beyond weekly gyrations when it meets on May 25 to decide whether it will extend its production cuts.

USA crude stockpiles fell less than expected last week, while gasoline inventories grew as demand remained weak, the Energy Information Administration said on Wednesday, keeping concerns about global supply on a simmer.

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Most of the losses came after data on Wednesday showed a smaller-than-expected fall in US oil inventories and rising production.

"Markets are losing faith that the global inventory glut will disappear on OPEC's cuts", said Michael Poulsen, an analyst at Global Risk Management Ltd.

"We still think the market does rebalance by the end of this year as long as OPEC continues its production cuts", Amrita Sen, chief oil analyst at the London-based consultant, said in a Bloomberg television interview.

The prices represent their lowest level since November previous year, ahead of OPEC producers' agreement to cut output.

Brent crude prices have rallied somewhat after plunging to below $47 a barrel this morning.

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On Thursday, while prices were still more than 50 percent below their peak in 2014, surging shale output triggered crude's biggest collapse in a generation and left rival producers scrambling to protect market share.

But many investors worry those efforts have been scuppered by rising shale production in the U.S. and falling demand in countries like China. They announced output cuts of 1.8 million barrels per day for the first six months of 2017.

Prior to the landmark deal, the volume of production in the country was at the level of 37.72 million tons of oil, while daily output stood at 829,100 barrels.

An extension to the production cut agreement is far from a done deal, with many details to be negotiated, including cut levels, exemptions and duration, amid an increasingly sceptical market.

Rosneft PJSC, Russia's largest oil producer, said first-quarter profit climbed 8.3 percent as the effect of higher crude prices was offset by a stronger ruble and production cuts.

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