Oil prices fell on Wednesday after hitting a near two-and-a-half year high in the previous session as analysts said the rally was gradually running out of steam despite supply outages in Libya and the North Sea.
Brent crude futures dropped to $66.26 a barrel, down 1.15 percent, or 76 cents, at 1047 GMT after breaking through $67 for the first time since May 2015 the previous day.
U.S. West Texas Intermediate (WTI) crude futures were at $59.57 a barrel, down 40 cents from their last settlement. WTI broke through $60 a barrel for the first time since June 2015 in the previous session.
“This could now be the fourth year in a row when the period around the turn of the year offers a good opportunity to start fading the market,” JBC Energy said in a note.
JBC said it believed the market will gradually realise it had overshot: “We would have to argue that sometime over the course of January we will see a major turnaround.”
It said prices could fall below $60 a barrel sometime in February and could even test $55 a barrel.
On Tuesday, Libya lost around 90,000 barrels per day (bpd) of crude oil supplies from a blast on a pipeline feeding Es Sider port.
That added to supply disruptions of recent weeks, which also included the closure of Britain’s largest Forties pipeline. On Tuesday, its operator said it expected full flows along the Forties link to resume in early January.
The Forties and Libyan outages, which together amount to around 500,000 bpd, are relatively small in a global context of both production and demand approaching 100 million bpd.
“The net global impact of the (Libyan) pipeline explosion is relatively small and we will not blow out of proportion the impact of the incident on the supply and demand picture,” said Olivier Jakob from Swiss-based Petromatrix.
He said the market could be supported by a U.S. cold spell and expectations of greater heating oil consumption.
Oil markets have tightened significantly over the past year thanks to voluntary supply restraint led the Middle East-dominated Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC Russia.
Data from the U.S. Energy Information Administration (EIA) shows that following rampant oversupply in 2015, global oil markets gradually came into balance by 2016 and started to show a slight supply deficit this year.
EIA data implies a slight supply shortfall of 180,000 bpd for the first quarter of 2018.
A major factor countering efforts by OPEC and Russia efforts to prop up prices is U.S. oil production, which has soared more than 16 percent since mid-2016 and is fast approaching 10 million bpd.
Only OPEC king-pin Saudi Arabia and Russia produce more.
The latest U.S. production figures are due to be published by the EIA on Thursday.