Oil Falls as Investors Fret About Oversupply

 

In its monthly report, the producer group said its oil output fell in October and forecast supply from rival producers next year would decline for the first time since 2007 as low prices prompt investment cuts, reducing a global supply glut.

 

But the Organization of the Petroleum Exporting Countries report also points to a 560,000-barrels per day (bpd) surplus in the market next year if the group keeps pumping at October's rate of 31.38 million bpd.

 

This is down from the 750,000 bpd indicated in last month's report, but served as a stark reminder that the balance of the market is still firmly tilted towards a surplus.

 

The price of oil has halved to below $50 a barrel in the last year, mainly as a result of OPEC's decision last November not to cut supply in response to slowing demand.

 

Brent crude futures were down 80 cents at $45.01 a barrel by 1342 GMT, following a 3.4 percent fall on Wednesday.

 

"(OPEC) are trying to put a positive spin on it by saying the decline in prices will encourage some demand, but they're also saying the reason for the drop in the first place is because supply is still outstripping demand," CMC Markets analyst Jasper Lawler said.

 

"I don't think it's revolutionary, but it's reiterating what we all know about supply and demand," he said.

 

Data showing a drop in China credit activity to its lowest in 15 months added to existing concern about growth in demand in the world's top commodities consumer.

 

Oil has drawn a degree of stability this week from demand for gasoline, and for blending components in particular, from Asia, which has tripled margins in Europe in the last month.

 

Demand is also strong in the United States, where gasoline importers on the East Coast are losing a trans-Atlantic tug-of-war over European supplies, outbid by Nigerian buyers anxious to avoid a holiday shortage.

 

"There is strength across the gasoline complex, which is supportive, and there is technical support as we reached the bottom of a two-month range yesterday," said Olivier Jakob, oil analyst at Petromatrix in Zug, Switzerland.

 

U.S. crude futures were down 76 cents on the day at $42.17 a barrel, adding to Wednesday's 3-percent drop.

 

Later, the Energy Information Agency (EIA) releases its weekly report on U.S. inventory levels. A Reuters poll shows analysts are expecting a build in stock levels in the week to Nov. 6.

 

The report is due at 11:00 a.m. EST (1600 GMT).