Oil prices drop to two-week lows as oversupply concerns linger

By Jane Chung

SEOUL (Reuters) - Oil prices fell nearly 1 percent on Friday to hit two-week lows, dragged lower by persistent oversupply worries despite a bigger-than-expected drawdown in U.S. crude inventories.

Investors were also keeping a close eye on the broad market impact of tensions between the United States and North Korea.

Brent crude, the global benchmark, was at $51.42 a barrel at 0524 GMT, down 48 cents, or 0.92 percent from its last close. That was the lowest since July 27.

U.S. West Texas Intermediate (WTI) crude was down 44 cents, or 0.91 percent, at $48.15 per barrel, reaching the lowest since July 26.

 

Oil prices touched 2-1/2 month highs on Thursday, but retreated to close down around 1.5 percent, with U.S. prices slipping back below $50 per barrel amid ongoing oversupply concerns.

"Crude oil prices failed to hold recent gains, with a nervous market starting to doubt recent falls in inventories," ANZ bank said in a note.

"Supply-side issues also weighed on prices, with data showing Libyan production in July hit its highest level for the year."

Meanwhile, U.S. President Donald Trump stepped up his rhetoric against North Korea again on Thursday, saying his earlier threat to unleash "fire and fury" on Pyongyang if it launched an attack may not have been tough enough.

"I think the issue that is affecting the market is the general risk sentiment of sabre-rattling between Washington and Pyongyang," said Michael McCarthy, chief market strategist at CMC Markets.

Official data showed crude inventories in the United States, the world's top oil consumer, fell sharply by 6.5 million barrels in the week ending to Aug. 4, as refiners ramped up run rates to the highest in 12 years due to strong demand. [EIA/S]

But doubts remain over whether enough crude would be consumed to end a global glut after the Organization of the Petroleum Exporting Countries (OPEC) reported on Thursday another increase in the oil cartel's production, even though it raised outlook for oil demand in 2018.

OPEC said its oil output rose by 173,000 barrels-per-day (bpd) in July to 32.87 million bpd.

Faced with lingering global glut woes, OPEC and some non-OPEC members including Russia in May extended oil production cuts to reduce 1.8 million bpd.

Meanwhile, Russian oil producer Gazprom Neft is considering resuming production in mature fields after the OPEC-led production cut agreement, a representative of the company said on Thursday.

Rising output from Nigeria and Libya is further undermining the oil producers' attempt to limit oil production. Nigeria and Libya are exempted from curbing output as they seek to restore supplies hurt by internal conflicts.

(Reporting by Jane Chung; Editing by Richard Pullin and Joseph Radford)