Oil dips after hitting $50/bbl as glut worries resurface

Thu May 26, 2016 5:05pm EDT
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By Barani Krishnan

NEW YORK (Reuters) - Oil prices hit $50 a barrel on Thursday for the first time in seven months, then bounced below that level and settled lower on the day as investors worried robust price gains could encourage more output and add to the global glut.

Wildfires in Canada's oil sands, unrest in the Nigerian and Libyan energy sectors, and a near economic meltdown in OPEC member Venezuela have knocked out nearly 4 million barrels per day in immediate production, sparking a buying frenzy in crude futures.

Brent and U.S. crude's West Texas Intermediate (WTI) futures have risen nearly 90 percent from 12-year lows hit this winter. They have recouped about half of what they lost since mid-2014 when both traded at above $100 a barrel.

A climb above $50 per barrel could spur producers, particularly U.S. shale drillers, to revive scrapped operations, which could bloat supplies and trigger a new selloff, analysts said.

"We are viewing current risk/reward ratios as unfavorable toward new longs at current levels," said Jim Ritterbusch of Chicago-based oil markets consultancy Ritterbusch & Associates, who cites a potential drop of Brent to $47.50.

Brent LCOc1 surged as high as $50.51, its highest since early November, then retreated and settled down 15 cents at $49.59 a barrel.

WTI CLc1 fell 8 cents to settle at $49.48, after reaching $50.21, its highest since early October.

U.S. crude for the balance of 2016 CLBALst remained above $50 while the calendar strip for 2017 CLYstc1 was above $51.   Continued...

Crude oil drips from a valve at an oil well operated by Venezuela's state oil company PDVSA, in the oil rich Orinoco belt, near Morichal at the state of Monagas April 16, 2015. REUTERS/Carlos Garcia Rawlins/File Photo