Oil edged up on June 23, recovering from a 10-month low U.S. prices hit earlier this week, but crude remained on course for its biggest first-half decline in almost two decades as production cuts have failed to sufficiently reduce oversupply.
Brent crude futures were up 14 cents at $45.36 a barrel (bbl) at 6:38 a.m. CT (11:38 GMT). West Texas Intermediate (WTI) crude futures traded at $42.87/bbl, up 13 cents on their previous close.
Oil prices have fallen about 20% this year despite an effort led by OPEC to cut production by 1.8 million bbl/d.
That puts the market on course for its biggest first-half percentage fall since the late 1990s, when rising output and the Asian financial crisis led to sharp losses.
"There is selective perception in the market at the moment. Bearish factors like higher output in Libya or Nigeria result in lower oil prices but bullish factors, like the really high OPEC commitment, are ignored," said Frank Schallenberger, head of commodity research at LBBW in Stuttgart.
He added he expected prices to bottom out between $40/bbl to $45/bbl before returning to $50 until the end of the year, buoyed by higher demand and continued OPEC and non-OPEC production cuts.
Tamas Varga, senior analyst at London brokerage PVM Oil Associates, also pointed at falling crude inventories in the U.S. as a fundamental factor that could support prices.
Earlier this week, the U.S. Energy Information Administration said crude inventories declined by 2.7 million bbl last week, exceeding expectations for a 2.1 million bbl drop.
At the heart of the ongoing glut, is that efforts to reduce production by OPEC suppliers, as well as Russia, have been met by soaring output from the U.S. and OPEC members Libya and Nigeria, which are exempt from the cuts.
Thanks to shale drillers, U.S. oil production has risen by more than 10% in the past year to 9.35 million bbl/d, close to the level of top exporter Saudi Arabia.
"Rising U.S. output continues to stress markets, with increasing evidence that improved efficiency and technology makes many of the shale plays profitable below $40 a barrel," said analysts at Cenkos Securities.
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