Posted March 15, 2017 09:10:24

Photo: US oil production has risen at the same time as OPEC has tried to limit its members' output. (Reuters)

Crude oil prices have hit their lowest level in three months after Saudi Arabia unexpectedly increased its production forecasts, adding to the current global oil glut.

The outlook for a continuing oil oversupply comes despite Saudi Arabia's deal with competitors to make a larger-than-required production cut in January.

The Organisation of Petroleum Exporting Countries (OPEC) confirmed the outlook for a deepening glut in its monthly report which shows Saudi Arabia ramped up output in February by 263,000 barrels per day to 10 million barrels per day.

OPEC's signal of complications in managing the global glut saw West Texas Intermediate crude fall another 1 per cent to US$47.19 a barrel, adding to a steep decline over the past fortnight.

The global benchmark Brent crude oil futures ended the overnight session 0.8 per cent lower $US50.92 a barrel.

Energy companies trading on Wall Street took the brunt of the fallout from lower prices, with Chevron down 1.8 per cent and Exxon Mobil losing 0.5 per cent.

Confirmation of a higher Saudi supply in the face of a global glut confused investors, with the Dow Jones Industrial Average ending 0.2 per cent lower.

In the report, OPEC said oil stockpiles in industrialised countries rose in January to be 278 million barrels above the five-year average.

"Despite the supply adjustment, stocks have continued to rise, not just in the US, but also in Europe," OPEC said.

"The speculative community is heavily stacked to the bullish side, buoyed by OPEC's renewed willingness to correct market oversupply."

Despite dipping below $US50 a barrel last week, crude oil is still well above a 12-year low reached in January 2016 of around $US27 a barrel.

Analysts say the US President's swearing in of several oil leaders gives his administration a pro-petroleum bias that may hurt Australia.

However, OPEC remains confident that global stockpiles will begin to fall as a result of the January supply cut.

"The market is expected to start balancing or even see the start of a drawdown in oil inventories," the monthly report noted.

OPEC is also taking a more confident view that world demand for oil will increase in 2017 as global economic growth recovers.

The global oversupply has been exacerbated by increases in US shale oil production and America moves to become independent of global supplies.

Follow Peter Ryan on Twitter @peter_f_ryan and on his Main Street blog.

Topics: oil-and-gas, saudi-arabia, united-states