Oil prices fall back from $50 as supply concerns weigh
Crude slumped today as investors worried higher prices would exacerbate the global oversupply.
Brent crude, the global benchmark, fell 0.8 per cent to $49.2 per barrel this morning. West Texas Intermediate crude, the US benchmarked, shed 0.8 per cent to $49.1.
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Oil pushed through $50 for the first time in around seven months yesterday due to outages in Canada, Libya and West Africa. However, the optimism was short-lived, with crude prices subsequently easing to close down on the day.
Higher oil prices effectively throw a lifeline to the cash-strapped US shale gas producers. This would work against Saudi Arabia's strategy of keeping crude low in order to retain its market by pricing the emerging industry out of the market.
"Shale is the new shock absorber to the market," said Tony Nunan, oil risk manager at Tokyo's Mitsubishi Corporation, said.
"There is a wide range of production costs. Shale's total production costs are around $48-$50 a barrel – there will be producers who make money at $50," he added.
Analysts, traders and commentators will now be looking towards the Organisation of Petroleum Exporting Countries (Opec) meeting on 2 June to give further clues about the future direction of oil markets.
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"Most people feel the meeting will be neutral or bad," Nunan said, with a neutral outcome leading to no change in oil output, while moves by producers like Saudi Arabia to boost production, would be bad.
"The Fed meeting could be the bigger trigger. An increase in interest rates will mean a higher dollar, a higher dollar means more expensive crude which could trigger a commodities sell-off."