Oil prices were hovering at near five-month lows on Friday, after comments from the Kremlin suggesting indecision over whether to extend production cuts sent crude tumbling overnight.
Brent crude fell below 47 US dollars per barrel (£36.33) in early morning trading to lows not seen since late November, as fears over a global glut caused jitters in the commodity market.
It came after a Kremlin spokesperson said no decision had been made on whether Russia would agree to extend oil cuts – which were introduced by Opec and other major oil producing states in January – into the second half of the year.
Michael Hewson, a chief market analyst at CMC Markets UK, said the comments created further concern among investors, who have also been fretting about slowing Chinese demand and rising US shale output.
But later comments from Russian authorities may have soothed some fears, though Mr Hewson questioned the timing of the remarks.
“This was later clarified by the Russian energy minister who said the Opec cuts deal should be extended, a little late in the day it has to be said, though probably nothing to do with the fact that prices closed at their worst levels in five months, maybe.”
Oil prices started to stage a recovery by mid-morning, rising around 0.5% to 48.56 US dollars (£37.53) per barrel – but still had a way to go before reaching last week’s peaks of 53 US dollars (£40.96).
Shares of London-listed oil majors struggled for direction, with BP’s stock hovering near the flatline at 444.5p, while Royal Dutch Shell’s ’B’ shares were up around 10p at 2,072p.
Brent crude prices have plunged more than 16% since recent highs of 58 US dollars per barrel (£44.83) in January, when enthusiasm for the Opec oil cuts – meant to tackle an overabundance of supply and help boost prices – reached a fever pitch.
It took months for Opec and non-members to reach a deal, though oil-producing states started to suffer from ultra-low prices which slumped to 27.26 US dollars per barrel (£21.07) in January 2016.
But many investors worry those efforts have been scuppered by rising shale production in the US and falling demand in countries like China.
Michael Baxter, an economics commentator for The Share Centre, said: “The oil price has hovered in a corridor of between 57 US dollars (£44.06) and 46 US dollars (£35.56) for much of the last 12 months, but until recently it seemed as if the oil cycle was slowly turning upwards.
The recent tripling in profits at BP – during the first quarter of this year – seemed to support a wider narrative that the oil majors were seeing a lift in profits on the back of the rises in the oil price.
“If the oil price stays below 50 US dollars (£38.65) for an extended time-period then the oil companies may see a hit on profits.”
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