Global oil clears $42 mark but oversupply fears loom large

Jessica Morris
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Markets have been spooked by a rise in the number of US oil rigs (Source: Getty)

Oil climbed above $42 per barrel today, but concern about the pace of the market recovery remains.

Brent crude, the global benchmark, rose 1.60 per cent to $42.47 per barrel in late afternoon trading. West Texas intermediate, the US benchmark, rose 1.82 per cent to $40.23.

They were supported by US government data which showed oil stocks rose by 1.4m barrels last week, however gasoline stores fell.

Sentiment has turned negative amid a glut of oil products which will clip refinery demand, expectations for Libya to restart exports, higher output from the Organisation of the Petroleum Exporting Countries and more US oil rigs.

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Trade group American Petroleum Institute (API) said yesterday that US oil stockpiles fell 1.34m barrels last week. Official US government data will be released later today.

"The US shale gas industry has dealt with low oil prices extremely well and adapted far quicker than Opec anticipated when it decided to let the market drive out higher cost producers," Craig Erlam, senior market analyst at Oanda, said.

"We're now back looking at a situation in which supply could pick up considerably again and prices as a result head south."

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The Institute of International Finance, a global association representing the finance industry, said today that the risk of a new major decline in oil prices is limited as even Opec producers have signalled that this isn't desirable.

The Washington-based organisation expects crude prices to average $43 per barrel this year, before rising to $49 in 2018.

"We see resistance in oil prices at $40 per barrel as the global overproduction of oil is declining," it said.