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Oil steadies below $67 as global glut builds

LONDON (Reuters) – Brent crude oil steadied below $67 a barrel on Friday, consolidating after several weeks of gains after reports of a growing supply glut that is building inventories worldwide.

Oil futures have rallied strongly since January after collapsing last year but analysts say the rebound may have over-shot, and could be about to correct.

Although the U.S. oil market is becoming more balanced, production elsewhere is still running well ahead of consumption.

“A mood change is in the air,” Eugen Weinberg, global head of oil and commodities research at Commerzbank in Frankfurt, told Reuters Global Oil Forum. “The oil price rally looks like it may be slowly running of steam.”

Brent for July was at $66.70 a barrel by 0900 GMT, unchanged from Thursday close after trading in a narrow 55-cent range. U.S. crude for June was down 25 cents at $59.63 a barrel.

Major market forecasters including the International Energy Agency (IEA) say the big oil producers in OPEC are pumping at least 2 million barrels per day (bpd) more than required, filling up inventories from Europe to China.

Although demand for fuel is likely to pick up in the second half of this year, the current over-supply is so great that there is unlikely to be any shortage this year unless there is a major, unexpected interruption to production.

“We have an oversupply of more than 2 million bpd – almost 3 million bpd. It must weigh on the market,” Weinberg said.

Thomas Pugh, economist at Capital Economics, agreed:

“The rally got ahead of itself. We think oil prices are more likely to fall over the rest of this year than to rise.”

Investors kept a close eye on rising tension in the Middle East Gulf after Iranian vessels fired shots at a Singapore-flagged tanker in the Gulf on Thursday.

President Barack Obama vowed on Thursday to back Gulf allies against any “external attack,” seeking to reassure them of Washington’s iron-clad commitment to their security amid Arab anxiety over U.S.-led efforts to reach a nuclear deal with Iran.

Baker Hughes will release weekly U.S. rig count data later on Friday. The data has become a closely watched indicator to gauge adjustments in U.S. production.

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