The oil market has serious doubts that the production deal between OPEC and Russia is sufficient enough to bring the world oil market back into balance, against a potential wave of new supply.
As a result, traders appeared to be adding to short positions, as crude fell sharply Wednesday morning, analysts said. The decline in oil prices was triggered by news that Libya had increased its production to a three-year high of 827,000 barrels a day.
"The game of chicken between them and the market is back on again," said John Kilduff,
West Texas Intermediate crude for July settled off 2.7 percent, at $48.32 per barrel after briefly breaking $48. Brent, the international benchmark, dipped temporarily below the psychological $50 for the first time in two
Last week, Saudi Arabia and other members of OPEC agreed with Russia and other producers to extend their agreement to cut back output by 1.8 million barrels a day for another nine months. But market expectations had been hinging on the idea that producers would take even more barrels off the market because of the overhang of supply. Oil plunged 5 percent last Thursday, after the announcement.