Oil bounces off 10-month lows; crude glut still weighs

NEW YORK (Reuters) - Oil rose on Thursday, a day after hitting 10-month lows, but market sentiment remained negative because the global crude glut has persisted despite OPEC-led output cuts.

An oil pump is seen operating in the Permian Basin near Midland, Texas, U.S. on May 3, 2017. REUTERS/Ernest Scheyder

Brent crude futures ended 40 cents higher to $45.22 a barrel, after falling as low as $44.53. Brent fell 2.6 percent the previous session to $44.35, lowest since November.

U.S. crude futures ended up 21 cents a barrel at $42.74 a barrel. On Wednesday, they hit a low of $42.05, their lowest intraday level since August 2016.

Crude has dropped around 20 percent since late February, erasing gains after OPEC and other countries agreed to cut crude output 1.8 million barrels per day (bpd) for the first six months of 2017.

Last month, the Organization of the Petroleum Exporting Countries and other producers extended the output cut deal for nine months. But the global crude glut has persisted, with output rising in Libya and Nigeria, OPEC members exempt from the cuts.

The price slide has tested OPEC’s pledge to do “whatever it takes” to support oil prices.

“We think it is lower for longer and rallies should be sold,” said Tariq Zahir, crude trader and managing member at Tyche Capital Advisors in New York.

In the United States, heavy oversupply in gasoline stocks has caused demand on the Colonial pipeline to hit a six-year low.

Crude output is still increasing in the United States, where some shale producers can profit even if oil prices drop below $40 a barrel.

Oil stocks in Europe’s Amsterdam-Rotterdam-Antwerp hub hit 64.2 million barrels in the week to June 16, the highest in a year, according to data from industry monitor Genscape.

“‎The question is whether OPEC will respond with further cuts or whether it needs to look again at its macro strategy for addressing low prices,” Michael Burns, oil and gas partner at law firm Ashurst, said.

Iraq Oil Minister Jabar al-Luaibi said oil prices should start recovering by the end of July, to reach $54 to $56 a barrel by the end of the year.

Tropical depression Cindy disrupted some operations in the Gulf of Mexico, home to about 17 percent of U.S. crude and 5 percent of dry natural gas output, supporting markets modestly. However, the storm is on the wane, even though heavy rains still threaten several U.S. Gulf states.

Additional reporting by Libby George in London; Editing by David Gregorio