“Not only do we have a struggle with production and an ineffectual OPEC, non-OPEC production regime, but you have this overhang again that is not clearing, and so that is what this market is reacting to,” he said.
“Now we’re in the process of the market playing chicken with OPEC and non-OPEC,” Kilduff added. The producers are “going to have to react again in a significant way to get the price to stabilize and go back up.”
The market has been waiting for signs that OPEC’s strategy is achieving its stated goal: driving global crude stockpiles down to the five-year average. Last week, the International Energy Agency warned inventories might not fall to that level until close to the expiration of OPEC’s current deal in March.
In this environment, Brent is unlikely to rise much above $50 a barrel, said Ole Hansen, head of commodity strategy at Saxo Bank.
“The market really is in desperate need of data, and the question is if data can improve fast enough over the coming couple months for that to happen,” he told CNBC on Tuesday.
However, surging U.S. production may be starting to respond to falling oil prices, Hansen said. Weekly increases in the nation’s output have been increasing at a slower pace in the last couple of months than in the prior two months, he noted.
While American drillers did indeed lock in higher prices earlier this year, the drop in oil futures has caught them by surprise, Hansen added. As some of their price hedges expire, the oil market may start to stabilize in the third quarter, he said.
— Reuters contributed to this story.