Despite conflicts in Ukraine, Iraq and Libya, global oil production has exceeded demand, leaving pockets of excess supply in Africa and Europe.
“Barring new supply outages, we see global supply capacity rising by 1.8 million barrels per day in 2014 – the fastest growth in a decade,” Morgan Stanley analysts led by Adam Longson said in a note, versus its forecast of a 1.1 million bpd demand growth this year.
Brent crude fell $0.17 to $107.40 per barrel by Tuesday morning after dropping nearly 0.8% in the previous session.
US crude dropped $0.34 to $101.33 per barrel, near a 1 to 2 week trough of $100.90 hit in the previous session.
Crude exports from OPEC’s second largest producer Iraq stayed near record levels as oil production in the south remained untouched by a conflict with Islamist militants in the north.
“We haven’t actually seen any real threat of disruptions to oil supplies,” CMC Markets analyst Desmond Chua told Reuters.
Libya’s capital Tripoli has slipped into chaos, but analysts said the OPEC producer’s low output, at way below 1 million barrels per day for close to two years, has already been factored into oil prices.
Israeli Prime Minister Benjamin Netanyahu has warned of a protracted war in Gaza, dashing any hopes of a swift end to the three-week conflict as Palestinian fighters launched an audacious cross-border raid.
In Europe, the US and European leaders agreed on Monday to impose wider sanctions on Russia’s financial, defence and energy sectors although these were not expected to impact Russian oil exports.
In the US, investors eyed gasoline inventories which have weighed on crude prices.
“From last week, we saw gasoline supplies increase against the backdrop of a driving season and this comes off as a surprise as in this season, you would expect declining US oil supplies,” Chua said.
A preliminary Reuters survey showed US gasoline stocks could have risen by 1 million barrels last week, adding to bloated supplies.
US commercial crude oil inventories likely dropped in the week to 25 July, the survey showed.
The world is unlikely to see a sudden rush in US oil exports as the Commerce Department has put on hold at least two companies’ requests for permission to sell lightly processed crude abroad.
A firm dollar also kept a lid on oil prices by making the commodity expensive for holders of other currencies.
The dollar held close to a six-month peak against a basket of major currencies early on Tuesday, ahead of a policy review by the US Federal Reserve.