US crude dips 10 cents, settling at $59.19, as gloomy supply forecast weighs on oil prices

Key Points
  • Oil prices rebounded after Brent crude hit a two-month low, as investors attempted to capitalize on recent declines.
  • Futures were under pressure on Tuesday after the International Energy Agency forecast world crude supply could overtake demand this year.
  • The IEA raised its forecast for oil demand growth in 2018, but warned rapidly rising output, particularly in the United States, could outweigh any pick-up in consumption.
IEA: A lot can change in oil market in the coming months

Oil prices rebounded from earlier losses after Brent hit a two-month low, as investors attempted to capitalize on recent declines in benchmark contracts.

The market earlier dropped after the Paris-based International Energy Agency said global oil supply would outstrip demand this year, prompting fears that efforts to reduce inventories would fall short of expectations.

Brent crude futures were up 13 cents at $62.72 a barrel by 2:29 p.m. ET, while U.S. West Texas Intermediate (WTI) crude futures ended Tuesday's session down 10 cents to $59.19 a barrel.

Oil prices fell in every session last week, wiping away the year's gains amid a volatile stock market.

"I think there are a lot of people who are praying that last week's collapse in crude...was some anomaly, and that as soon as the stock market recovered, the crude market would recover with it," said Walter Zimmerman, chief technical analyst at United-ICAP.

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"So far its looking a little ominous but WTI has not broken down," Zimmerman said, adding the contract would have to decline more to enter a bear market.

The IEA revised its global demand forecast upward by 7.7 percent, but rising production, particularly from the United States — which has overtaken Saudi Arabia to become the second-largest global producer — may outweigh demand gains.

"U.S. producers are enjoying a second wave of growth so extraordinary that in 2018 their increase in liquids production could equal global demand growth," the IEA said.

U.S. oil production is expected to surpass 11 million barrels per day in late 2018, a year earlier than projected last month, the U.S. Energy Information Administration said last week.

The Organization of the Petroleum Exporting Countries said on Monday it expected world oil demand to climb by 1.59 million bpd this year, an increase of 60,000 bpd from the previous forecast, to 98.6 million bpd.

OPEC and other producers including Russia have been reducing supplies since 2017. The cuts are scheduled to last through 2018.

Crude prices in correction territory

On Monday, OPEC Secretary General Mohammed Barkindo told CNBC the cartel has assurances from Moscow that Russian producers will not turn on the taps, even as oil prices rise. Market-watchers are wary of Russia's commitment, especially as U.S. crude exports are on the rise.

Seasonality may also be affecting prices, analysts said.

"A driving force behind the next few weeks of pricing vulnerability stems from the current peak in U.S. refinery maintenance season," Michael Tran, commodity strategist at RBC Capital Markets, wrote in a research note.

The private American Petroleum Institute is due to publish crude inventory estimates on Tuesday, while the U.S. government's Energy Information Administration releases weekly inventory data on Wednesday.

The dollar's index against a basket of six major currencies fell nearly 0.6 percent to 89.71 on Tuesday. A weaker dollar makes fuel imports cheaper for countries that use other currencies domestically, potentially spurring demand.

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— CNBC's Tom DiChristopher contributed to this report.