Oil prices slipped on Tuesday as crude output rose in virtually every major export region despite plans by OPEC and Russia to cut production, triggering fears that a fuel glut that has dogged markets for more than two years might last well into 2017.
International Brent crude oil futures fell $1.03, or 1.9 percent, to $53.91 per barrel by 2:36 p.m. ET (1936 GMT). U.S. West Texas Intermediate (WTI) crude settled down 86 cents, or 1.7 percent, at $50.93 a barrel, for the first down day in five sessions.
Brent rose more than 15 percent over the four sessions since the Nov. 30 OPEC meeting. The Brent front-month has outperformed the U.S. contract since the OPEC meeting, with its premium over WTI reaching $2.29 a barrel earlier on Tuesday, its highest since August.
Analysts said the boon from last week's Organization of the Petroleum Exporting Countries decision has faded as they now look to factors that may undermine the cartel's promise such as record production, Russia's plans and the reaction of U.S. shale producers.
"Adherence to assigned OPEC quotas is apt to be limited and enforcement of such nearly impossible," Jim Ritterbusch, president of Chicago-based energy advisory firm Ritterbusch & Associates, said in a note.
"With most of the planned reduction falling on the shoulders of the Persian Gulf producers, we look for other OPEC members to virtually ignore assigned quotas," Ritterbusch said.
OPEC's oil output set another record high in November, rising to 34.19 million barrels per day (bpd) from 33.82 million bpd in October, according to a Reuters survey based on shipping data and information from industry sources.
Russia reported average oil production in November of 11.21 million bpd, its highest in nearly 30 years. That means OPEC and Russia alone produced enough to cover almost half of global oil demand, which is just above 95 million bpd.
Instilling further doubts about OPEC's ability to really cut output, sources told Reuters that Saudi Arabia and Kuwait may agree to resume oil production from jointly-held fields in a neutral zone between the two countries.
"Amid other wild cards, e.g. Libyan and Nigerian production, a potential Neutral Zone restart adds to the uncertainty around just what the impact of the recent OPEC decision will be," JBC analysts said, referring also to the two African OPEC members who were exempt from the round of cuts and may increase output.
Market watchers had said OPEC's decision to cut output marked an about-turn for Saudi Arabia, which has been battling to keep its market share for the past two years by selling more, if cheaper, barrels rather than bolstering prices.
In a further sign that the fight for market share is not over — especially in Asia, the world's biggest consumer region — Saudi Aramco cut the January price for its Arab Light grade for Asian customers by $1.20 a barrel versus December.
As part of the deal, OPEC said major oil producers not part of the group had agreed to cut a further 600,000 bpd of production. These countries and OPEC are due to meet this weekend to finalize their portion.
But analysts said oil prices were unlikely to tumble back to levels of around or below $45 a barrel seen before last week's deal. Matt Stanley, fuel broker at Freight Investor Services International in Dubai, said the oil market was trying to find "some kind of level it is happy settling at."
"I have a feeling it is more towards the $50 per barrel range than $55 per barrel," he said.
Meanwhile, Glencore chief Ivan Glasenberg reflected some fears in the market when he said prices could drop to $35 should U.S. shale producers ramp up their output though he hoped they would be "responsible."
Many shale oil producers have suffered as prices fell below their production break-even levels and so may hope to boost output following the recent price rise.
The U.S. Energy Information Administration (EIA) expects U.S. crude production to fall less than previously expected to 8.9 million bpd in 2016 and to 8.8 million bpd in 2017 from 9.4 million bpd in 2015, according to its monthly short term energy outlook.
Analysts, meanwhile, forecast U.S. crude inventories fell by 1 million barrels last week.
The American Petroleum Institute (API) is set to release U.S. inventory data at 4:30 p.m. EST on Tuesday, while the U.S. EIA will release its petroleum report at 10:30 a.m. EST on Wednesday.