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US crude settles at $49.66, down 14 cents, as Libya output feeds glut worries

Men work for Iraqi Drilling Company at Rumaila oilfield in Basra, Iraq,
Essam Al-Sudani | Reuters
Men work for Iraqi Drilling Company at Rumaila oilfield in Basra, Iraq,

Oil prices fell on Tuesday amid signs of a resurgence in Libya's output and on concerns that extended production cuts by the world's top exporters may not be enough to drain a global glut that has depressed prices for almost three years.

Benchmark Brent crude was down 35 cents a barrel at $51.94 by 2:41 p.m. ET (1841 GMT), having gained 14 cents on Monday. U.S. light crude ended Tuesday's session 14 cents lower at $49.66.

Libya's oil production was at 784,000 barrels per day (bpd) because of a technical issue at the Sharara field, but was expected to start rising to 800,000 bpd on Tuesday, the chief of the state-run National Oil Corporation said.

The Organization of the Petroleum Exporting Countries and other oil producers, including Russia, agreed last week to keep a tight rein on supply until the end of the first quarter of 2018, nine months longer than originally planned.

Collective output by OPEC and other producers will be held around 1.8 million barrels per day (bpd) below its level at the end of last year.

But the cutbacks have yet to drain inventories by a significant degree and prices fell after the OPEC deal was announced.

"The market is now in the hands of how market participants interpret the weekly and monthly fundamental snapshots with all eyes focused on total global oil inventory levels," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

"The market is looking for the OPEC/non-OPEC production cutting accord to result in a sustained inventory destocking pattern that will send global supply and demand balances back to normal historical levels."

Part of the problem for OPEC is oil supply in the United States, where shale production is booming.

U.S. drillers have added oil rigs for 19 straight weeks. The number of rigs operating in the United States now totals 722, the highest level since April 2015, according to services firm Baker Hughes.

Some selling pressure on Tuesday also came from banks, traders and brokers said.

Goldman Sachs analysts have reduced their forecasts for oil prices, saying that falling U.S. production costs will keep supply rising for years to come.

The bank said that once OPEC's production growth resumes after its self-imposed cuts, U.S. and OPEC output would rise by 1 million to 1.3 million bpd between 2018 and 2020.

"While we are bullish on near-term prices as inventories normalize ... 2018-19 futures need to be in the $45-$50 range," Goldman said.

The American summer driving season, which by tradition started on the Memorial Day holiday on Monday, may offer some support for prices, analysts said. Demand in the United States for transport fuels tends to rise as families visit friends and relatives or go on vacation during the Northern Hemisphere summer.

The American Automobile Association said ahead of Memorial Day that it expects 39.3 million Americans to travel 50 miles (80 km) or more over the Memorial Day weekend, the highest Memorial Day mileage since 2005.

— CNBC's Tom DiChristopher contributed to this report.