There may still be upside for crude oil prices even if the market appears to be let down by a production cut extension by the Organization of the Petroleum Exporting Countries (OPEC), analysts said Friday.
On Thursday, OPEC announced it would extend cuts in oil output by nine months to March 2018, after November's landmark deal failed to clear a global supply overhang.
The market was disappointed, sending prices nearly 5 percent lower overnight as investors were anticipating deeper cuts.
"This is a bit of an overreaction. Markets are heading towards more rebalancing in Q3 and Q4 of this year ," said Wood Mackenzie's research director for Asia refining, Sushant Gupta.
Crude oil futures were lower on Friday in Asia at 1.20 p.m. SIN/HK time with U.S. West Texas Intermediate and European Brent 0.7 percent and 0.5 percent lower at $48.55 and $51.18 a barrel respectively.
After OPEC's production cuts, Wood Mackenzie expects global supply to increase about 200,000 barrels per day while demand grows at 1.3 million barrels per day, Wood Mackenzie projects.
"There (will be) a meaningful drawdown in inventories," said Gupta.