Oil Falls a Second Day Amid Ample U.S. Supply, Iraqi Shipments

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Bearish Tone Is Taking Over Oil Markets: Chris Gersch

Oil declined for a second day on speculation that a global crude supply glut will grow.

Prices retreated after failing to breach $60 a barrel in New York for a third day. Iraq exported the most oil in more than three decades last month, Asim Jihad, a spokesman for the Oil Ministry, said by text message Friday. U.S. crude inventories are still at their highest level in 85 years even after the nation’s biggest storage hub reported a decline in stockpiles last week.

Trading volume was reduced because of the May Day holiday in the U.K. The size of market moves can be erratic when the number of contracts traded declines. Oil in New York climbed 25 percent in April, the biggest monthly advance since May 2009 amid speculation that a drop in the number of U.S. drilling rigs will reduce stockpiles.

“I’m at a loss to explain how oil has held up as well as it has,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $3.4 billion, said by phone. “The market has been defying gravity. The fundamentals aren’t supportive.”

West Texas Intermediate for June delivery fell 22 cents, or 0.4 percent, to settle at $58.93 a barrel on the New York Mercantile Exchange. Prices touched $59.90 on May 1, the highest level since Dec. 11. Volume was 51 percent below the 100-day average at 2:50 p.m.

Decreasing Volume

Brent for June settlement slipped 1 cent to end the session at $66.45 a barrel on the London-based ICE Futures Europe exchange. It reached $67.10 earlier, the highest since Dec. 8. Volume was down 58 percent from the 100-day average. The European benchmark crude closed at a $7.52 premium to WTI.

Iraq shipped 92.3 million barrels of crude in April, Asim said. That’s equivalent to 3.08 million barrels a day, compared with 2.98 million a day in March.

“The drop in the rig count is a known quantity, that we know will eventually impact crude output,” Gene McGillian, a senior analyst at Tradition Energy in Stamford, Connecticut, said by phone. “The problem for the market is that production continues to rise elsewhere.”

Drilling Activity

Drillers in the U.S. reduced the number of active machines by 24 to 679 last week, according to data from Baker Hughes Inc., as oilfield-services company. The rig count has dropped 57 percent from the start of December.

“We’ve climbed on expectations that North American output has peaked,” McGillian said. “We are still pumping 9.3 million barrels a day and have more oil than we know what to do with. This oversupply will leave the market vulnerable to a pullback.”

Growth in U.S. oil production has ended, according to crude trader and hedge fund manager Andrew J. Hall. Output rose to almost 10 million barrels a day in February and has been falling since then, Hall said in a letter Friday to investors in Astenbeck Capital Management LLC, his commodities hedge fund.

Euro-area manufacturing increased more than estimated last month while Chinese estimates were missed. A purchasing managers index for the euro-area fell to 52 from 52.2 in March, compared with an April 23 estimate of 51.9. China’s final Purchasing Managers’ Index for April was at 48.9, missing analysts’ estimates and signaling a contraction, HSBC Holdings Plc and Markit Economics said Monday. A print above 50 signals expansion

“We’re still producing a lot more oil than we’re consuming,” Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC, said by phone. “There has to be substantial increase in consumption to support prices at this level and I just don’t see where it’s coming from.”

Gasoline futures for June delivery decreased 1.14 cents, or 0.6 percent, to settle at $2.0339 a gallon in New York. June ultra low sulfur diesel slipped 0.35 cent to close at $1.9787.

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