Oil prices pinned near five-month low as supply glut weighs

"So far OPEC`s strategy to draw down inventories has not worked ... It seems obvious to us that OPEC will need to keep the cuts in place for longer than the next 6 months if their strategy is to have any chance of success," Neil Beveridge, senior oil and gas analyst at AB Bernstein in Hong Kong said in a note to clients on Friday.

FILE PHOTO: Offshore oil platform is seen in Huntington Beach. Pic: Reuters

Oil prices fell further on Friday to be mired at five-month lows after tumbling in the previous session, as concerns about global oversupply wiped out all of the price gains since OPEC`s move to cut output.

The recent steep price fall would likely force OPEC members to extend production cuts later this month, but the prospect of deeper cuts appeared slim, analysts said.

"So far OPEC`s strategy to draw down inventories has not worked ... It seems obvious to us that OPEC will need to keep the cuts in place for longer than the next 6 months if their strategy is to have any chance of success," Neil Beveridge, senior oil and gas analyst at AB Bernstein in Hong Kong said in a note to clients on Friday.

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Brent crude futures, the international benchmark for oil prices, were at $48.28 per barrel at 0305 GMT, down 10 cents, or 0.2 percent, from their last close. Brent tumbled back below $50 a barrel in the previous session.

U.S. West Texas Intermediate (WTI) crude oil futures were trading at $45.40 per barrel, down 12 cents, or 0.3 percent, after a more than 4 percent drop the previous session.

Crude is now back to levels last seen before the Organisation of the Petroleum Exporting Countries (OPEC) and other producers said they would cut output by almost 1.8 million barrels per day (bpd) during the first half of the year in a bid to tighten the market.

"This collapse seems to be due to stops being hit. However I feel it is a bit strange so close to OPEC ... meeting where a roll over seems likely," said Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore.

Traders pointed to soaring U.S. oil production, which has risen over 10 percent since mid-2016 to 9.3 million bpd, levels not far off top producers Russia and Saudi Arabia.

Doubts that the OPEC-led cuts, even when fully implemented, are deep enough to draw down bloated storage levels around the world are also weighing on prices.

"Any likelihood of an increase in the level of cuts remains slim with OPEC officials playing down this possibility," added James Woods, global investment analyst at Rivkin Securities.

In a sign of ongoing oversupply, the amount of oil stored on tankers in Malaysia`s waters has surged again recently, after drawing down slightly in March and April.

OPEC is scheduled to meet on May 25 to decide whether to extend the cuts.

OPEC and non-OPEC oil producers look likely to extend their agreement to limit supplies beyond its June expiry to help clear a glut, three OPEC delegates said on Thursday, but they downplayed the chance of additional steps such as a bigger cut.

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