Oil prices fell Tuesday as crude production continues to outpace supply
By Amanda Cooper
LONDON (Reuters) - Oil prices fell on Tuesday, erasing gains linked to security fears after the Paris attacks, as investor focused again on the global oversupply in crude and petroleum products that is showing no signs of abating.
Analysts said that despite the deadly Paris attacks and French retaliation against Islamic State (IS) in Syria, prices would remain low for the rest of the year and into 2016 as oil markets stay oversupplied.
Production in 2015 will outpace demand by 700,000 to 2.5 million barrels per day, according to estimates.
Oil rigs and platforms are seen at Maracaibo's lake near the western city of Maracaibo January 2, 2008. REUTERS/Isaac Urrutia
"Today, it's back to the drawing board. The market is still oversupplied and yesterday was an adjusting of positions after these dreadful events," PVM Oil Associates analyst Tamas Varga said.
"Unless the geopolitical tensions, which have obviously risen since Friday, are going to be manifested in physical supply destruction in the Middle East, I think sentiment should remain more bearish than bullish."
Brent crude futures <LCOc1> were down 85 cents at $43.71 a barrel by 0943 ET, having closed up 2 percent on Monday.
U.S. WTI futures <CLc1> were down 82 cents at $40.92.
The premium of Brent futures over their U.S. equivalent narrowed to around $1.77 a barrel, from closer to $4 at the start of the month.
A narrower spread tends to encourage a greater flow of oil from abroad into the U.S. market as crude grades that are pegged to the pricier Brent benchmark become more affordable.
Two separate reports on U.S. crude inventory levels are due this week, with the first later on Tuesday.
Stockpiles are expected to have risen for an eighth straight week, which could deliver a blow to any bulls hoping for a rebound.
"I think we've completed the extension that was required (in price) on the downside and I think we're still in the $40-50 range," Saxo Bank commodities strategist Ole Hansen said.
"We've got the inventory reports coming today and tomorrow and if they continue to rise above expectations, then obviously, that will create some headwind."
Speculators are betting on a renewed drop in price.
December WTI options expire later on Tuesday. Most open interest is gathered around put options, which give the seller the right, but not the obligation, to sell U.S. futures at both $40 and $45 a barrel. <0#CLc1>
Money managers cut their net long U.S. crude futures and options positions to the lowest in three months during the week to Nov. 10, the U.S. Commodity Futures Trading Commission (CFTC) said on Monday.
U.S. crude oil prices have now been lower than $50 for longer than they were during the height of the global credit crunch in late 2008/2009, and the forward curve also shows less price increase today than it did then.
(Additional reporting by Henning Gloystein in Singapore; Editing by Louise Heavens and Keith Weir)