A gas flare burns at Russian oil refinery, operated by OAO Lukoil. in Russia. Picture: BLOOMBERG
A gas flare burns at Russian oil refinery, operated by OAO Lukoil. in Russia. Picture: BLOOMBERG

London — Oil prices steadied on Thursday, having lost nearly 7%  over the previous three days, but concern over the prospect of an oversupplied market next year remained in spite of oil cartel Opec’s message that it may cut crude output.

Opec, led by Saudi Arabia, is considering a cut of up to 1.4-million barrels per day (bpd) next year to avoid the kind of build-up in global inventories that prompted the oil price to crash between 2014 and 2016.

Brent crude oil futures were virtually flat on the day at $66.13 a barrel at 10.35am GMT, while US crude futures were down 34c at $55.91.

“[A cut] helps, but based on my balances, I think we’ll need to see 1.5-million bpd at least for the first half of the year. Words aren’t going to work. The market is going to need to see action as well,” said ING commodities strategist Warren Patterson.

This week, the International Energy Agency (IEA) and Opec  warned of a sizeable surplus at least in the first half of 2019, and possibly beyond, given the pace of growth in non-Opec  production and slower demand in heavy consumers, such as China and India.

“To avoid further price erosion, a production cut is a must. It is not only manifested in the demand for Opec oil as estimated by forecasters, but also in the Organisation for Economic Co-operation and Development (OECD) stock levels,” said PVM Oil Associates strategist Tamas Varga.

The oil price has lost about a quarter of its value in only six weeks in the face of soaring production led by the US, as well as a slowing global economy. “Asian refiners and consumers we speak with are mentioning initial concerns of slowing demand,” said Mike Corley, president of Mercatus Energy Advisors.

US bank Morgan Stanley said on Wednesday that China’s economic “conditions deteriorated materially” in the third quarter of 2018, while analysts at Capital Economics said China’s “near-term economic outlook still remains downbeat”.

China is the world’s biggest oil importer and the second-largest crude consumer.

As a result, oil inventories are rising. The American Petroleum Institute (API) said late on Wednesday that crude inventories rose by 8.8-million barrels in the week to November 9 to 440.7-million, compared with analyst expectations for an increase of 3.2-million barrels.

Bernstein Energy analysts said in a note, “With inventories likely to build in the first quarter of 2019, prices could remain under pressure in the near term.”