OPEC's production cut agreement is not yet succeeding in driving down supply, suggesting that $50 per barrel oil may turn out to be a market top, industry experts told CNBC on Thursday.
The predictions follow Wednesday's slump in oil prices when the benchmark WTI and Brent indices both tumbled over 5 percent to close the session at $50.28 and $53.11, respectively. For WTI, the level represented its biggest one-day fall since February 2016 and the lowest closing price since early December.
Both benchmarks had failed to sustain a recovery by mid-morning European trade on Thursday with WTI down a further 2.35 percent for the session to break below $50 and Brent down 1.64 percent as of 10:30 am London time.
The price plunge has been primarily attributed to U.S. data showing domestic stockpiles had recorded a ninth consecutive month of supply rises in February to reach 8.2 million barrels. Adding to the negative sentiment, non-committal comments from OPEC and non-OPEC members on Wednesday indicated that while producers intend to continue pursuing production cuts, they will not pledge at this point to renew their existing six-month agreement once it expires in May.
Indeed, despite claims from participants that the existing agreement is functioning well, it actually has fundamental flaws if you peek behind the headlines, according to Eugen Weinberg, head of commodities research at Commerzbank.
"Compliance within OPEC is less than 50 percent if you exclude Kuwait and Saudi Arabia who cannot shoulder the whole burden over the long-term," Weinberg told CNBC by phone on Thursday.
Furthermore, while production cuts might be underway on the part of some participants, export numbers have not softened, hence why market supply is still elevated.
"The export numbers are at the same level as last December which demonstrates that the oil production cut is having little effect on market levels," he added.
"The market is looking for a price recovery from here but as there is still not enough of a cut to send supply into deficit, I think $50 per barrel is more likely to be a ceiling than a floor with prices potentially slipping down to $40 this year," opined the Commerzbank analyst.
His pricing outlook was supported by Kevin Boscher, chief investment officer, Brooks Macdonald Asset Management, speaking on CNBC's Squawk Box on Thursday.
"Our view is the oil price is in a trading range. $50 – 55 is more likely to be the ceiling for now than the floor, particularly as part of Trump's policies is likely to be making the U.S. more self-sufficient from an oil perspective," he posited.
"We're likely to see an increase in supply of oil at a time where supply and demand are roughly a little bit more balanced," Boscher added.
The psychologically critical $50 mark was also within the sights of Sam Wahab, director of oil and gas research at Cantor Fitzgerald Europe, who described continued U.S. upgrades in both inventory and production as the greatest downside risk for now.
"There are also certain doubts as to whether all OPEC members will stick to their quotas (notably Iraq), which combined, could very well see the Brent oil price slip towards $50 over the coming fortnight," added Wahab.
Yet not everyone shares the bearish view, with analysts at Goldman Sachs publishing a more optimistic note on Monday claiming that oil demand is now poised to overtake supply.
"Our conviction that OECD inventories will steadily decline through 2Q17 remains high…with stocks showing declines over the past two weeks and crude forward curves flattening significantly recently," reads the research.
"While the shale production rebound has surprised to the upside, the slightly larger production cuts than we had expected and most importantly, the higher 2016 realized demand level, lead us to expect a slightly faster normalization in OECD inventories through 2017 than previously," the analysts concluded.