At one point, the Brent and West Texas Intermediate (WTI) futures contracts plunged by over 3% to their lowest level in almost seven months, before mounting a marginal recovery. "OPEC (and allies) may have pared back production, but that's being offset by relentless drilling in the US and more output in Libya".
OPEC output jumped 336,000 barrels per day to over 32.14 million barrels in May'17 despite 106 percent output cut compliance last month. This, combined with the hostile political climate in North Africa and West Asia has threatened exports, causing the supply glut.
The ongoing decline in prices appears to have stemmed from investors discounting evidence of robust compliance by OPEC and non-OPEC producers with a deal to curtail a global supply overhang.
Investors were discouraged by data showing oil refineries in China, the world's top crude importer, cutting operations during the peak demand summer season.
The U.S. crude futures contract for July, due to expire later on Tuesday, settled down 97 cents at $43.23, the lowest since September 16. Yet production is rising in Nigeria and Libya, countries exempt from the deal, offsetting cuts by other OPEC members.
Libya's oil production rose more than 50,000 bpd to 885,000 bpd after the state oil company settled a dispute with Germany's Wintershall, a Libyan source told Reuters.
That is just above the price seen in November, when OPEC and 10 other oil-producing countries agreed to cut their production to combat a growing supply glut and push the market up. According to the deal, the cartel will reduce its oil output by 1.2 million barrels per day. Brent was trading around $45.81 and is down by $1.10.
The International Energy Agency (IEA) stated that the output of non-members of the Organisation of Petroleum Exporting Countries (OPEC) would grow in 2018.
Growth in production in the US and Libya, as well as a high level of oil reserves, undermines the forecasts that an oil production reduction will raise prices for "black gold". US crude stocks fell last week, while gasoline and distillate inventories rose.