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Oil Slips Below $49 as Rising Supply Trumps Hopes for Producer Action

Oil fell below $49 a barrel on Tuesday, giving up part of August's strong rally, as signs of rising supply outweighed hopes that producing nations will agree steps to support prices.

A Nigerian militant group, which has claimed a wave of attacks on oil facilities, said at the weekend it was ready for a ceasefire and Iraq resumed pumping through a northern pipeline halted earlier this year.

A motorist pumps fuel into his vehicle at JJ's Express Gas Plus station in Phoenix gas station in Phoenix
A motorist pumps fuel into his vehicle at JJ's Express Gas Plus station in Phoenix gas station in Phoenix, Arizona. REUTERS/Joshua Lott REUTERS

Brent crude was down 59 cents at $48.57 a barrel in early morning trading on Tuesday. The global benchmark rallied 20 percent between the beginning of the month and August 19.

U.S. crude was down 62 cents at $46.79.

"Today we remain bearish on crude oil," said Georgi Slavov, analyst at Marex Spectron. "Supply looks likely to increase in the short term."

Goldman Sachs, in a report, said talk of an output freeze by the Organization of the Petroleum Exporting Countries and a weak dollar had helped drive prices up this month but neither was enough to sustain current levels.

Oil prices have more than halved from mid-2014 due to a global supply glut.

Raising hopes that producers could revive efforts to tackle excess supply, Saudi Arabia's Energy Minister Khalid al-Falih said on Aug. 11 OPEC and non-members will discuss the market next month including any action that may be needed.

The International Energy Forum, which groups producers and consumers, is due to meet on Sept. 26-28 in Algiers.

Where Does Oil Come From? 0:43

A previous attempt by producers to freeze output collapsed in April amid tensions between Iran and Saudi Arabia and the refusal of some countries to join. Analysts remain skeptical concrete action will result this time.

"We see too many headwinds and logistical challenges to a meaningful deal," Morgan Stanley said in a report.

In focus later on Tuesday will be the first of this week's reports on U.S. inventories, which analysts expect will show a decline in crude and gasoline stocks.

The American Petroleum Institute, an industry group, is scheduled to release its data at 2030 GMT, while the government's supply report is due on Wednesday.

Investors are also looking for clues on whether the U.S. Federal Reserve will raise interest rates this year. Fed Chair Janet Yellen will give a speech at a global central banking conference in Jackson Hole, Wyoming, on Friday.