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Oil falls below $66 as global glut builds

LONDON – Brent crude oil fell below $66 a barrel on Friday after reports that a growing supply glut was boosting inventories worldwide.

Oil futures have rallied strongly since January after collapsing last year but analysts say the rebound may have overshot and could be about to correct.

Although the U.S. oil market is becoming more balanced, production elsewhere is still running well ahead of consumption.

“A mood change is in the air,” Eugen Weinberg, global head of oil and commodities research at Commerzbank in Frankfurt, told the Reuters Global Oil Forum. “The oil price rally looks like it may be slowly running of steam.”

Brent for July was at $65.80 a barrel by 1330 GMT, down 90 cents. U.S. crude for June was down $1.10 at $58.78 a barrel.

Market forecasters including the International Energy Agency (IEA) say big oil producers in OPEC are pumping at least 2 million barrels per day (bpd) more than required, filling up inventories from Europe to China.

Related: Oil rises towards $66 as weaker dollar offsets oversupply concern

STOCKS BUILDING

The U.S. government’s Energy Information Administration says that world oil stocks are rising at 1.95 million bpd this quarter and will continue to build until at least the end of 2016.

Though demand for fuel is likely to pick up in the second half of this year, the current oversupply is so great there is unlikely to be a shortage any time soon unless there is a major, unexpected interruption to production.

“We have an oversupply of more than 2 million bpd, almost 3 million bpd. It must weigh on the market,” Weinberg said.

Thomas Pugh, economist at Capital Economics, agreed: “The rally got ahead of itself. We think oil prices are more likely to fall over the rest of this year than rise.”

Investors kept a close eye on rising tension in the Middle East after Iranian vessels fired shots at a Singapore-flagged tanker in the Gulf on Thursday.

President Barack Obama vowed on Thursday to back Gulf allies against any “external attack,” seeking to reassure them about their security amid Arab anxiety over U.S.-led efforts to reach a nuclear deal with Iran.

Baker Hughes will release weekly U.S. rig count data later on Friday. The data has become a closely watched indicator to gauge adjustments in U.S. production.

(Additional reporting by Florence Tan in Singapore; Editing by William Hardy and David Goodman)

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