Investing.com -- Crude futures fell 2% on Tuesday, extending losses from the previous session, as a monthly report from OPEC provided further signals of a widening gap between supply and demand on energy markets worldwide.
On the New York Mercantile Exchange, WTI crude for April delivery traded in a broad range between $35.97 and $37.41 a barrel, before settling at $36.33, down 0.85 or 2.29% on the session. U.S. crude prices have quickly fallen back to 10-day lows just two sessions after surging to their highest level since early-December. The sell-off has exacerbated fears among investors that a six-week rally may be nearing its completion. Since plummeting to 13-year lows from mid-February at $26.05 a barrel, WTI crude has rebounded approximately 30%.
On the Intercontinental Exchange (ICE), brent crude for May delivery wavered between $38.33 and 39.74 a barrel, before closing at $38.71, down 0.82 or 2.07% on the session. North Sea crude futures have also rallied sharply over the last month and a half after briefly dipping below $30 a barrel in mid-February.
Crude prices continued to slide, in spite of a slight reduction in OPEC production last month. In its monthly oil market report released on Monday, OPEC said its output decreased by 175,000 to 32.28 million barrels per day in February, mainly due to pipeline disruptions in Iraq and Nigeria. Production in Saudi Arabia, the world's largest exporter of crude, held steady at 10.22 million bpd.
Analysts appeared more concerned with the growing imbalance between supply and demand, amid indications for lower than expected refinery demand in Asia during the spring maintenance season and slowing economic outlook in Latin America. As a result, OPEC lowered its demand outlook for 2016 by 90,000 to 31.52 million bpd. The forecasts still project an increase of approximately 1.8 million bpd from OPEC's average demand last year.
If OPEC continues to drill oil at February's rate, its supply will exceed demand by 760,000 bpd in 2016. Crude prices have crashed more than 60% over the last 15 months since OPEC rattled global markets with a strategic decision to maintain its production ceiling above a level of 30 million barrels per day. The tactic triggered a prolonged battle for market share with U.S. shale producers, flooding markets with a glut of oversupply.
"There has been a reduction in production costs, mainly in the U.S., as well as increased hedging, with producers choosing to produce with losses rather than stopping production," OPEC said in the report. "This has caused the non-OPEC supply forecast in 2016 to become more uncertain."
Iran, meanwhile, increased production by more than 40,000 bpd in February to 3.39 million bpd, slightly above monthly estimates from secondary sources. Over the weekend, Iran oil minister Bijan Zanganeh said his nation would be unwilling to agree to terms of a coordinated OPEC-Non OPEC output freeze until its production reaches pre-sanction levels of 4 million bpd. Separately, three OPEC sources said an emergency meeting aimed at stabilizing prices will likely be held in Doha in mid-April. Previously, the meeting was scheduled for March 20 in Russia.
The rebound in oil prices has been spurred by reports that Saudi Arabia, Russia and two other OPEC nations could be willing to cap output at their respective levels from January. Any significant progress in the negotiations, though, has been dampened by Iran's reluctance to take part in the discussions. Even if the deal is completed, analysts expect global supply to outpace demand by at least 1 million bpd in 2016.
Investors await the release of the American Petroleum Institute's weekly inventory report after the bell for a clearer picture on the supply-demand balance on domestic markets. Separately, Wednesday's government report could show that crude stockpiles increased by 3.4 million barrels for the week ending on March 11.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, rose by more than 0.15% to an intraday high of 96.91. The index still remained near one-month lows.
Dollar-denominated commodities such as crude become more expensive for foreign purchasers when the dollar appreciates.