Market jitters have wiped 10pc from the global Brent crude benchmark, knocking it below $64 a barrel on Monday after a heady rise had pushed it a three-year high of $70 last month.
Brent could fall further as hedge funds begin to cut their bets that the rally will continue.
The Organisation of Petroleum Exporting Countries said its plan to boost prices by draining the market of a chronic supply glut would be supported by global demand growing faster than expected in 2018.
Its latest monthly report forecast that oil demand would grow by 1.59 million barrels a day this year, around 60,000 barrels higher than its previous forecast.
However, the Vienna-based group warned that oil producers outside the cartel were likely to boost their output by more than expected, too.
US shale frackers are steadily raising their rig numbers to take advantage of higher prices, but there is uncertainty over how fast their oil will return to the market.
Opec has had to revise its forecasts for non-Opec supply higher for the third month in a row. It now predicts production from outside the group will climb by 1.4 million barrels a day this year. That is 250,000 barrels higher than last month’s report and significantly above its 870,000-barrel-a-day forecast in November.
John Kemp, an analyst at Reuters, said hedge funds had started to liquidate their bets on higher oil prices as US supply concerns taken hold.
In total, money managers have cut their bets on higher oil prices by a total of 63 million barrels over the last two weeks after building up record ‘long positions’ as prices hit $70 a barrel.
“Commentators have identified several possible triggers for the correction in oil prices, including the sharp drop in US equities, recent dollar strengthening and the unexpectedly rapid increase in US shale production,” he said.
“In reality, positioning in the oil market had become so stretched almost anything, or nothing at all, could have sparked a sell-off,” he added.
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