World oil prices sank on Tuesday after producers Saudi Arabia and Kuwait announced a deal to gradually resume production at a joint oilfield.
The agreement adds to persistent concerns about global oversupply and the market also softened because of caution on the eve of key US crude inventories data.
At around 1630 GMT, US benchmark West Texas Intermediate (WTI) for delivery in May shed $1.23 to $38.16 a barrel.
Brent North Sea crude for the same month shed $1.21 to $39.06 per barrel compared with Monday’s closing level.
“Crude oil prices slumped … as Saudi Arabia agreed to reopen a joint oil field with Kuwait, ahead of expectations of another build in Tuesday’s API inventories data,” said CMC Markets analyst Jasper Lawler.
Saudi Arabia and Kuwait have reached a deal to resume production at the disputed Khafji offshore oilfield, Kuwait’s acting oil minister said Tuesday.
“An agreement has been reached with the Saudi side at Aramco to resume production at Khafji field in small quantities,” Anas al-Saleh told parliament during a debate.
Saleh, who is also the finance minister, said the quantities will increase “gradually” after resolving environmental issues over which the field was shut down.
Production at Khafji, which pumped over 300,000 barrels per day and was jointly operated by the two countries, was halted in October 2014. Riyadh cited environmental issues for the shutdown.
Last week, oil prices had snapped a five-week run of gains on the strong dollar and soaring US crude stocks that have worsened the global supply glut.
“Oil prices are beginning the new week of trading down after last week saw Brent record its first weekly loss in five weeks,” added Commerzbank analyst Carsten Fritsch on Tuesday.
The commodity has however seen healthy rises this month, after hitting near 13-year lows in February, thanks to a weak dollar and hopes that key producers will agree to output limits at an upcoming meeting in Doha.
With most global markets closed on Friday and Monday for Easter, trade has been limited but investors are now focusing on Wednesday’s weekly US Department of Energy report inventories to gauge demand in the world’s top oil consumer.
Later on Tuesday, meanwhile, industry body the American Petroleum Institute (API) will later publish its separate weekly inventories report.
Sydney-based CMC Markets analyst Michael McCarthy told AFP that the recent price drop “does reflect the concerns about the rally that has brought us to these levels. It’s not sustainable and has run ahead of the actual recovery”.
He added: “We’ve got a huge inventory supply around the globe, not just in the US. Sustained upmoves are very hard to see and anything about $40 on the WTI is likely to be vulnerable to selling.”
McCarthy also said a pick-up in the dollar could be “the trigger for further downside” as it makes crude more expensive for buyers with weaker currencies.
