Crude Oil Recovers, But Glut Weighs
Gulf producers delay field maintenance to keep output high.
Oil recovered off earlier lows on Tuesday, but stayed well below $50, pressured by a glut in supply and worries about a fragile demand outlook.
Brent crude futures were up 33 cents at $49.12 by 1100 GMT, but gains were kept in check by Russian production hitting a post-Soviet peak and a weaker outlook for demand from China.
U.S. crude futures were up 39 cents $46.53 per barrel, after falling in the previous session due to a rise in stockpiles.
"It's all about supply," said Michael Hewson, analyst at CMC Markets. "Oil's going to remain under pressure, with inventories likely to expand and the potential for Iranian supply to come on stream in the next few months."
Also adding to the supply glut, Gulf oil producers are delaying some field maintenance until next year to keep production high and reduce costs as they forecast ongoing low oil prices in 2016.
An expected dip in U.S. oil production as a result of low prices is unlikely to significantly dent a glut, which is seen remaining at 1-2 million barrels per day on average for 2015.
"Our framework suggests that (U.S.) production would drop by 35,000 barrels per day in 2016 at the current rig count under our well deferral scenario, more than the 20,000 barrels per day year-on-year decline estimated a week ago," Goldman Sachs said in a note.
However it added that even in the United States there are indications that production could rise.
"A rapid draw-down of the observed backlog of uncompleted wells could lead to higher production later this year and in 2016," it said.
U.S. crude oil stockpiles likely rose by 2.7 million barrels last week, growing for a sixth consecutive week as supply outstrips demand, a Reuters poll showed. The American Petroleum Institute (API) will issue its preliminary inventory data on Tuesday before official numbers on Wednesday from the U.S. government.
Olivier Jakob at Swiss-based research group Petromatrix said that the expectation of some inventory draws at the Cushing oil hub may be supporting the oil price.
By Simon Falush
