Oil prices fell 3 percent in Asian trade on Tuesday, with investors covering short positions and taking profits after Brent and US crude soared more than 8 percent in the previous session.
Both Brent and US crude prices dropped nearly USD 2 a barrel shortly after trading in Brent started on Tuesday before recovering later in the session.
“A lot of the fall was due to short covering,” said Ben Le Brun, market analyst at Sydney’s OptionsXpress. “There could be a bit of profit taking for people who have gone long,” he added. The falls also indicated investors may have “gone overboard” in pushing up prices so fast, Le Brun said. US crude, also known as West Texas Intermediate, climbed 27.5 percent by the end of the previous session after three days of gains, the largest three-day increase in dollar terms since February 2011 and the biggest percentage increase since August 1990.
The surge was fueled by an OPEC commentary saying the cartel was willing to talk to other producers to achieve reasonable oil prices, as well as by the downward revision of US output data by the US Energy Information Administration (EIA). “(The OPEC comments) could be just a bit of politicking given the strategy to date looked to be all about market share,” ANZ said in a market report on Tuesday. “But it does suggest that many producers are likely to be hurting at these levels.” Revised EIA data published on Monday showed US domestic oil production peaked at just above 9.6 million barrels per day (bpd) in April before falling by more than 300,000 bpd over the following two months.
US commercial crude stocks fell by 1.5 million barrels to 449.3 million barrels last week, according to a Reuters poll of analysts on Monday taken ahead of US industry and government data. Despite the fall in US production the global oil market is still over supplied with oil and a decline in US production is increasingly likely in 2016, Morgan Stanley said in a report on Tuesday. Brent crude for October delivery had dropped USD 1.47 to USD 52.68 a barrel, or 2.7 percent, as of 0226 GMT after climbing USD 4.10, or 8.2 percent, in the previous session. It dropped by USD 1.99 a barrel earlier in the session.
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