Oil prices slumped on Monday as traders took profits on receding prospects of an imminent cut to the global supply glut.
Prices hit three-week highs earlier on Monday, building on last week’s strong gains driven by US dollar weakness and after Russia said it could meet the OPEC producers’ group for talks on possible output cuts.
However, they sharply reversed direction as analysts further doubted a looming reduction in the amount of oil being pumped out by the world’s leading producers.
At about 5pm GMT, US benchmark West Texas Intermediate for delivery in March slumped to US$31.84 a barrel, down US$1.78 compared with Friday’s close.
Brent North Sea crude for April delivery shed US$1.46 to US$34.53.
Brent had earlier on Monday struck a three-week high at US$36.25 before profit-taking took hold.
“Crude oil has started the new week on the back foot, giving back a big chunk of the sharp gains made in the previous couple of weeks,” City Index analyst Fawad Razaqzada said.
“Profit-taking is one of the main reasons for the oil price drop today,” he added.
Analysts cautioned against putting too much hope on talks between non-OPEC crude producer Russia and the cartel on reducing output in a move that could support prices.
Crude futures have crashed by about three-quarters since mid-2014 owing to global oversupply, weak demand growth and a strong US dollar.
However, both contracts surged on Thursday after Russian reports that Russian Minister of Energy Alexander Novak had said Moscow was ready to take part in talks with OPEC to establish possible “coordination.”
He said the discussions could be on making production cuts of up to 5 percent per country.
“Oil has stopped its bullish momentum and most of the reason comes from the relatively strong dollar in light of Japan’s surprising negative interest rate decision,” Phillip Futures analyst Daniel Ang said.
As oil is traded in dollars, a rise in the greenback makes crude more expensive for holders of weaker units, dampening demand.
Oil prices closed higher last week to end a turbulent month in which prices plunged to 12-year lows.
Meanwhile, the US dollar has gained support after Japan’s central bank shocked markets on Friday with a decision to adopt a below-zero interest rate policy to spur bank lending and drive up inflation.
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